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Spurious Complexity and Common Standards in Markets for Consumer Goods

This is a new version of the 2007 paper with the same title.

We think about situations where consumers make mistakes when confronted with complex purchasing decision problems. A firm may then make its offer unnecessarily difficult to understand to confuse some consumers into mistakenly preferring its product, even when its product is in fact little different from the competition.

We model a force that may keep a firm from trying to confuse consumer: If consumers only choose among the most easily comparable options, then firms that do not follow common conventions in presenting their product will suffer.

Because the products of firms that follow such common conventions are directly comparable, their prices will be lower than those of firms that do not adopt the common standard. This means that consumers who use the ‘common standard heuristic’ (i.e. who choose only among firms that adopt the common standard) will be better off than others. This also means that a firm that moves away from the common standard thus signals higher prices.

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