A more general model of price complexity |
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| Affiliation: | 1. Feinberg School of Medicine, Northwestern University, 420 E Superior St., Chicago, IL 60646, USA;2. Clemson University, USA;3. Temple University, USA;1. Waseda University, 1-6-1 Nishiwaseda, Shinjuku-ku, Tokyo 169-8050, Japan;2. Japan Society for the Promotion of Science, 5-3-1 Kojimachi, Chiyoda-ku, Tokyo 102-0083, Japan;1. Centre for Competition Policy, University of East Anglia, Norwich NR4 7TJ, UK;2. School of Economics, University of East Anglia, Norwich NR4 7TJ, UK;3. Norwich Business School, University of East Anglia, Norwich NR4 7TJ, UK;4. Comtech Systems Inc., Victoria, BC, Canada;1. Department of Economic Science, Athens University of Economics and Business, Patission 76, Athens 104 34, Greece;2. Department of Economics, Vrije Universiteit Amsterdam, TILEC and Tinbergen Institute, De Boelelaan 1105, 1081 HV Amsterdam, the Netherlands;3. School of Economics and Finance, University of St Andrews, St Andrews, KY16 9AR, Scotland United Kingdom |
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| Abstract: | This paper analyses a model of competition where the firms set not only prices but also the complexity levels of their prices (which determine how difficult it is for consumers to assess the price offers). Unlike previous work, in this model, the firms’ confusion technology may be non-linear in the aggregate complexity level. The equilibrium probability of using high complexity increases in the number of firms but decreases in the convexity of the confusion technology. In large markets, the firms use high complexity almost surely. However, the industry profit converges to the highest level with concave technologies and to the lowest level with convex technologies. An increase in consumer sophistication, which benefits the consumers, may not reduce market complexity. |
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