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Title:Spurious complexity and common standards in markets for consumer goods PDF Logo
Authors:Gaudeul, Alexia
Sugden, Robert
Issue Date:2009
Series/Report no.:Jena economic research papers 2009,084
Abstract:It has been argued that cognitively constrained consumers respond sub-optimally 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:common standard
spurious complexity
cognitive limitations
JEL:D83
L13
L51
Document Type:Working Paper
Appears in Collections:Jena Economic Research Papers, MPI für Ökonomik

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