Buyer Confusion and Market Prices

28 Pages Posted: 7 Apr 2011

See all articles by Kenan Kalayci

Kenan Kalayci

University of Queensland

Johannes (Jan) J. M. Potters

Tilburg University - CentER

Date Written: June 8, 2010

Abstract

We employ a price setting duopoly experiment to examine whether buyer confusion increases market prices. Each seller offers a good to buyers who have homogeneous preferences. Sellers decide on the number of attributes of their good and set prices. The number of attributes bears no cost to the sellers and does not affect the value of the good to the buyers but adds complexity to buyers' evaluation of the goods. The experimental results indicate that the buyers make more suboptimal choices and that prices are higher when the number of attributes of the goods is higher. Moreover, prices and profits are higher than those in a benchmark treatment with perfectly rational (robot) buyers.

Keywords: experiment, bounded rationality, buyer confusion, product complexity, market power

JEL Classification: C9, D03, D12, L13

Suggested Citation

Kalayci, Kenan and Potters, Johannes (Jan) J. M., Buyer Confusion and Market Prices (June 8, 2010). Netspar Discussion Paper No. 06/2010-088. Available at SSRN: https://ssrn.com/abstract=1804302 or http://dx.doi.org/10.2139/ssrn.1804302

Kenan Kalayci

University of Queensland ( email )

Brisbane, QLD 4072
Australia

HOME PAGE: http://www.uq.edu.au/economics/kalayci-kenan

Johannes (Jan) J. M. Potters (Contact Author)

Tilburg University - CentER ( email )

Department of Economics
P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 8204 (Phone)
+31 13 466 3042 (Fax)

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