Almost a good illustration


This is “almost” a good illustration of the paper Robert Sugden and I wrote (Spurious Complexity and Common Standards in Markets for Consumer Goods, http://ssrn.com/abstract=1489378, forthcoming Economica).

We go a step further by arguing that if some consumers limit their choice to firms with tariffs that are “simpler” (in terms of how easy they are to compare to others), then they will obtain lower prices than they would otherwise do since those firms are in close competition with their similarly packaged competitors. The “common standard” heuristics is thus validated. Its use ought to spread through learning, especially as it is applicable in a wide range of cases. At some point, firms with confusing contract terms would then have such a small share of the market (composed of those irremediable consumers who enjoy being confused!) that their strategy becomes unprofitable and they disappear.

We do however mention the possibility that firms may indeed collude to keep prices confusing (referred to as a “confusopoly” by Scott Adams). This calls for a degree of light touch regulation to get some firms to adopt a common standard, this common standard then spreading naturally through competitive forces in the market.

The paper is available at SSRN and RePEc.


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