Spurious Complexity and Common Standards in Markets for Consumer Goods

17 Pages Posted: 28 Mar 2012

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: April 2012

Abstract

It has been argued that cognitively constrained consumers respond suboptimally 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.

Suggested Citation

Gaudeul, Alexia and Sugden, Robert, Spurious Complexity and Common Standards in Markets for Consumer Goods (April 2012). Economica, Vol. 79, Issue 314, pp. 209-225, 2012. Available at SSRN: https://ssrn.com/abstract=2030119 or http://dx.doi.org/10.1111/j.1468-0335.2011.00895.x

Alexia Gaudeul (Contact Author)

Georg-August-Universität Göttingen ( email )

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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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