Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/230030 
Year of Publication: 
2019
Citation: 
[Journal:] Journal of Economics & Management Strategy [ISSN:] 1530-9134 [Volume:] 29 [Issue:] 1 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2019 [Pages:] 97-121
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
We analyze a model of price competition between a transparent retailer and a deceptive one in a market where a fraction of consumers is naïve. The transparent retailer is an independent shop managed by its owner. The deceptive retailer belongs to a chain and is operated by a manager. The two retailers sell an identical base product, but the deceptive one also offers an add-on. Rational consumers never consider buying the add-on while naïve ones can be “talked” into buying it. By offering the manager a contract that pushes him to never sell the base good without the add-on, the chain can induce an equilibrium in which both retailers obtain more-than-competitive profits. The equilibrium features price dispersion and market segmentation, with the deceptive retailer targeting only naïve consumers whereas the transparent retailer serves only rational ones.
Subjects: 
add‐on pricing
bait and switch
consumer naïveté
incentive contracts
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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