Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/32620
Authors: 
Gaudeul, Alexia
Sugden, Robert
Year of Publication: 
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

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