Prominence, complexity, and pricing

Chioveanu, Ioana

Abstract

This paper analyzes prominence in a homogeneous product market where two firms simultaneously choose both prices and price complexity levels. Market-wide complexity results in consumer confusion. Confused consumers are more likely to buy from the prominent firm. In equilibrium there is dispersion in both prices and price complexity. The nature of equilibrium depends on prominence. Compared to its rival, the prominent firm makes higher profit, associates a smaller price range with lowest complexity, puts lower probability on lowest complexity, and sets a higher average price. However, higher prominence may benefit consumers and, conditional on choosing lowest complexity, the prominent firm's average price is lower, which is consistent with confused consumers'bias.

• Journal Article Type: Article
• Acceptance Date: Dec 29, 2018
• Online Publication Date: Jan 16, 2019
• Publication Date: 2019-03
• Deposit Date: Mar 12, 2020
• Publicly Available Date: Mar 13, 2020
• Journal: International Journal of Industrial Organization
• Print ISSN: 0167-7187
• Electronic ISSN: 1873-7986
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 63
• Pages: 551-582
• DOI: https://doi.org/10.1016/j.ijindorg.2018.12.005
• Keywords: oligopoly markets; consumer confusion; prominence; price complexity; price dispersion
• Public URL: https://nottingham-repository.worktribe.com/output/4132020
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0167718719300025
• Additional Information: This article is maintained by: Elsevier; Article Title: Prominence, complexity, and pricing; Journal Title: International Journal of Industrial Organization; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.ijindorg.2018.12.005; Content Type: article; Copyright: © 2019 The Author. Published by Elsevier B.V.