Consumer confusion, obfuscation and price regulation

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.