Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/253666 
Year of Publication: 
2021
Publisher: 
ZBW – Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
In a variety of purchasing situations, consumers may focus primarily on headline prices, ignoring the full costs associated with acquiring and maintaining a product or service contract. Even when this is the case, it is widely believed that intense competition would adequately protect consumers (the so-called "waterbed effect"). However, in a tractable model of imperfect competition and vertical differentiation, we show that when consumers exhibit context-dependent preferences, competition may rather exacerbate their and society's harm. Then, consumer protection policy must sufficiently constrain hidden costs and fees so that competition, along with high-quality firms' incentives to educate consumers, can restore efficiency.
Subjects: 
shrouded charges
hidden fees
price competition
shopping
salience
unshrouding
JEL: 
D11
D18
D21
D43
D60
L11
L13
L15
Document Type: 
Working Paper

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