Browsing versus Studying: A Pro-Market Case
We identify a novel competition-policy-based argument for regulating the secondary features of complex or complexly-priced products when consumers have limited attention. We study a market in which each firm chooses two price components, a headline price and an additional price, and a consumer can either fully understand the offer of one firm (studying), or look at only the headline prices of two firms (browsing). Regulations capping the additional price or standardizing conditions under which the additional price can be charged lower prices and increase consumer welfare in a variety of environments. The core mechanism is simple: because consumers do not need to worry about regulated features, they can devote more attention to browsing, enhancing competition. Extending our model to multiple markets, we show that the benefits of regulating one market may manifest themselves in other markets, and that in order to have a non-trivial pro-competitive effect, the regulations in question must be sufficiently broad in scope. As an auxiliary positive prediction, we show that because low-value consumers are often more likely to study than high-value consumers, the average price consumers pay can be increasing in the share of low-value consumers. This prediction helps explain why a number of essential products are more expensive in lower-income neighborhoods.
Date: 5 June 2018, 12:45 (Tuesday, 7th week, Trinity 2018)
Venue: Nuffield College, New Road OX1 1NF
Venue Details: Butler Room
Speaker: Johannes Johnen (Louvain/CORE)
Organising department: Department of Economics
Organisers: Anne Pouliquen (University of Oxford), Erin Saunders (University of Oxford)
Part of: Economic Theory Workshop
Booking required?: Not required
Audience: Members of the University only
Editors: Erin Saunders, Anne Pouliquen, Melis Clark