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- Title
Spurious Complexity and Common Standards in Markets for Consumer Goods.
- Authors
Gaudeul, Alexia; Sugden, Robert
- 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.
- Subjects
CONSUMER goods; DECISION making; ECONOMIC competition; PRICING; TARIFF
- Publication
Economica, 2012, Vol 79, Issue 314, p209
- ISSN
0013-0427
- Publication type
Article
- DOI
10.1111/j.1468-0335.2011.00895.x