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Price Competition with Consumer Confusion

41 Pages Posted: 15 Oct 2011  

Ioana Chiovenanu

Brunel University London

Jidong Zhou

University College London - Department of Economics

Date Written: September 2011

Abstract

This paper proposes a model in which identical sellers of a homogenous product compete in both prices and price frames (i.e., ways to present price information). Frame choices affect the comparability of price offers, and may lead to consumer confusion. In the symmetric equilibrium price and price frame dispersion coexist and firms make positive profits. Moreover, the nature of equilibrium depends on whether frame differentiation or frame complexity is more confusing, and an increase in the number of firms can raise industry profits and harm consumers.

Keywords: bounded rationality, framing, oligopoly markets, frame dispersion

Suggested Citation

Chiovenanu, Ioana and Zhou, Jidong, Price Competition with Consumer Confusion (September 2011). NYU Working Paper No. 2451/29990. Available at SSRN: https://ssrn.com/abstract=1944447

Ioana Chioveanu

Brunel University London

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

Jidong Zhou (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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