Gu, Y. and Wenzel, T. (2020) Curbing obfuscation: Empower consumers or regulate firms? International Journal of Industrial Organization, 70. 102582. ISSN 0167-7187
Abstract
This paper develops a market model where consumers refrain from buying products that they are unable to understand and a firm can influence the probability of a consumer understanding its offer. In equilibrium, firms artificially increase product complexity, and firms that offer more transparent products choose on average higher prices. We study two sets of public policies. We show that consumer side policies may have the unintended consequence of encouraging obfuscation while firm side policies are always effective in curbing obfuscation. Interestingly, a consumer side policy can even harm consumers when it protects consumers so much that it greatly increases the marginal effectiveness of obfuscation. Policies on both sides can either increase or decrease social welfare depending on the marginal effectiveness and the marginal cost of obfuscation. Our main insights hold in both asymmetric and symmetric obfuscation equilibria.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2020 Elsevier B.V. This is an author produced version of a paper subsequently published in International Journal of Industrial Organization. Uploaded in accordance with the publisher's self-archiving policy. Article available under the terms of the CC-BY-NC-ND licence (https://creativecommons.org/licenses/by-nc-nd/4.0/). |
Keywords: | Consumer confusion; Obfuscation; Consumer protection policy; Regulation |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 21 Jan 2020 15:10 |
Last Modified: | 10 Feb 2022 01:38 |
Status: | Published |
Publisher: | Elsevier |
Refereed: | Yes |
Identification Number: | 10.1016/j.ijindorg.2020.102582 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:155880 |