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Consumer confusion, obfuscation and price regulation
Author(s) -
Gu Yiquan,
Wenzel Tobias
Publication year - 2017
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12121
Subject(s) - obfuscation , duopoly , economics , marginal cost , microeconomics , confusion , production (economics) , welfare , production cost , industrial organization , market economy , computer science , cournot competition , psychoanalysis , psychology , mechanical engineering , computer security , engineering
Abstract This paper studies firms’ obfuscation choices in a duopoly setting where two firms differ in their marginal costs of production. We show that the high‐cost firm chooses maximum obfuscation while the low‐cost firm chooses minimal (maximal) obfuscation if the cost advantage is large (small). We argue that in this setting there is a new role for price regulation as it leads to more transparent pricing. Moreover, a price cap benefits social welfare as it shifts production to the more efficient low‐cost firm.