article

Competition when firms can confuse consumers: A primer on some ongoing research

I felt like giving a little primer on the results of an experiment that Paolo and I did in December, about the incentives for firms to confuse consumers. I was motivated by seeing the following recent article in JEBO:

“Consumer Myopia, Competition and the Incentives to Unshroud Add-on Information” by Tobias Wenzel
http://dx.doi.org/10.1016/j.jebo.2013.12.002

As in most (all?) articles on shrouding, this paper considers only the one stage game and finds as usual that firms will want to make their prices transparent… while ignoring the impact of collusion.

Yes, I did the same thing in my paper in Economica with Bob Sugden on spurious complexity and common standards (http://dx.doi.org/10.1111/j.1468-0335.2011.00895.x). But now, from a recent experiment with Paolo Crosetto where we test a similar model in the lab, we found that firms were quite able to collude not to unshroud after experiencing the horrors of an unshrouded equilibrium!

I am excited about writing up the results, as in fact, being able to choose to make prices transparent or not can help collusion compared to a standard setting with no possible shrouding, and this in two ways: by serving as a signal that one wishes to make peace with others, and also by making the punishment phase harder on those who deviate and unshroud. Once said, this looks obvious now, but I guess this has been missed by others than us, so I don’t feel so bad about missing it.

I will be working in the next month or so on writing up the results, but I am now busy finishing writing a paper on the relation between exit costs and incentives to exit in a repeated version of the public good game with imperfect public monitoring and stochastic outcomes. Very interesting, but it has been hell to find the correct perspective in writing about the experimental findings.

One thought on “Competition when firms can confuse consumers: A primer on some ongoing research

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s