Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/180308
Authors: 
Ispano, Alessandro
Schwardmann, Peter
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7046
Abstract: 
We model firms’ quality disclosure and pricing in the presence of cursed consumers, who fail to be sufficiently skeptical about undisclosed quality. We show that neither competition nor the presence of sophisticated consumers necessarily protect cursed consumers from being exploited. Exploitation arises if markets are vertically differentiated, if there are few cursed consumers, and if average product quality is high. Three common policy measures aimed at consumer protection, i.e. mandatory disclosure, third party disclosure and consumer education may all increase exploitation and decrease welfare. Even where these policies improve overall welfare, they often lead to a reduction in consumer surplus.
Subjects: 
naïve
cursed
disclosure
consumer protection
labeling
competition
JEL: 
C72
D03
D82
D83
Document Type: 
Working Paper

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