Paolo Crosetto writes about our new paper about price and format competition with consumer confusion.
Nice graphs depict our “Chrome market model”:
Our conclusion is as follows:
In a nutshell, clever consumers are not enough to avoid collusion and high prices. Consumer protection may therefore require some encouragement for firms to present prices and products in a common format. For example, firms may have to be required to provide some standard information to help consumers in comparing products, for example an index of energy efficiency for fridges and other appliances.
Unit price information is already generally available or even mandated in supermarkets. Some standardization is also present at the national level for presenting lending rates in terms of annual percentage rate of charge. There is however a lot of progress to be made for example in the automobile market, where fuel economy information is often misleading and wrongly conveyed.
Agreeing on common formats for measuring the performance and prices of different type of relatively undifferentiated products could therefore be a valuable extension to the efforts that have led to the progressive spread of the metric system for physical measurements.
The paper is available on SSRN as:
Crosetto, Paolo and Gaudeul, Alexia, Choosing Whether to Compete: Price and Format Competition with Consumer Confusion (November 3, 2014). Available at SSRN: http://ssrn.com/abstract=2519000 or http://dx.doi.org/10.2139/ssrn.2519000
or on RePEC at:
Crosetto, Paolo and Gaudeul, Alexia, (2014), Choosing whether to compete: Price and format competition with consumer confusion, No 2014-026, Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, http://EconPapers.repec.org/RePEc:jrp:jrpwrp:2014-026.