Spurious Complexity and Common Standards in Markets for Consumer Goods

JENA Economic Research Paper No. 2009-084

31 Pages Posted: 18 Oct 2009

See all articles by Alexia Gaudeul

Alexia Gaudeul

Georg-August-Universität Göttingen

Robert Sugden

University of East Anglia - School of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: October 14, 2009

Abstract

It has been argued that cognitively constrained consumers respond sub-optimally to complex decision problems, and that firms can exploit these limitations by introducing spurious complexity into tariff structures, weakening price competition. We model a countervailing force. Restricting one’s choices to the most easily comparable options is a psychologically well-attested heuristic. Consumers who use this heuristic favour firms that follow common conventions about tariff structures. Because a ‘common standard’ promotes price competition, a firm’s use of it signals that it offers value for money, validating the heuristic. This allows an equilibrium in which firms use common standards and set competitive prices.

Keywords: common standard, spurious complexity, cognitive limitations

JEL Classification: D83, L13, L51

Suggested Citation

Gaudeul, Alexia and Sugden, Robert, Spurious Complexity and Common Standards in Markets for Consumer Goods (October 14, 2009). JENA Economic Research Paper No. 2009-084. Available at SSRN: https://ssrn.com/abstract=1489378 or http://dx.doi.org/10.2139/ssrn.1489378

Alexia Gaudeul (Contact Author)

Georg-August-Universität Göttingen ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany
+49 (0) 551 39 7333 (Phone)

HOME PAGE: http://agaudeul.free.fr

Robert Sugden

University of East Anglia - School of Economics ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom
+44 (0) 1603 593423 (Phone)

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