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Price competition under limited comparability

Piccione, Michele and Spiegler, Ran (2012) Price competition under limited comparability. The Quarterly Journal of Economics, 127 (1). pp. 97-135. ISSN 0033-5533

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Identification Number: 10.1093/qje/qjr053

Abstract

This article studies market competition when firms can influence consumers' ability to compare market alternatives through their choice of price “formats.” In our model, the ability of a consumer to make a comparison depends on the firms' format choices. Our main results concern the interaction between firms' equilibrium price and format decisions and its implications for industry profits and consumer switching rates. In particular, market forces drive down the firms' profits to a “constrained competitive” benchmark if and only if the comparability structure satisfies a property that we interpret as a form of “frame neutrality.” The same property is necessary for equilibrium behavior to display statistical independence between price and format decisions. We also show that narrow regulatory interventions that aim to facilitate comparisons may have an anticompetitive effect.

Item Type: Article
Official URL: http://qje.oxfordjournals.org/
Additional Information: © 2012 Oxford University Press
Subjects: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Collections > Economists Online
Date Deposited: 21 Feb 2012 12:54
Last Modified: 02 Jun 2014 09:12
URI: http://eprints.lse.ac.uk/id/eprint/41974

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