- A-Z
- Jena Economic Resea...
- Volume 3
- Spurious complexity...
- Autor(in)
- Erschienen
- 15. Oktober 2009
- Nummer des Discussion-Papers
-
2009-084
- Schlagwort(e)
-
cognitive limitations
common standard
spurious complexity
- Zusammenfsg.
-
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.
- article pub. typess JER
- Research article
- article languages JER
- Englisch
- article research fields JER
- economics
- JEL-Classification for JER
- D83 - Search; Learning; Information and Knowledge; Communication; Belief ; L13 - Oligopoly and Other Imperfect Markets ; L15 - Information and Product Quality; Standardization and Compatibility