Buyer confusion and market prices

K. Kalayci, J.J.M. Potters

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We employ a price setting duopoly experiment to examine whether buyer confusion increases market prices. Each seller offers a good to buyers who have homogeneous preferences. Sellers decide on the number of attributes of their good and set prices. The number of attributes bears no cost to the sellers and does not affect the value of the good to the buyers but adds complexity to buyers’ evaluation of the goods. The experimental results indicate that the buyers make more suboptimal choices and that prices are higher when the number of attributes of the goods is higher. Moreover, prices and profits are higher than those in a benchmark treatment with perfectly rational (robot) buyers.
Original languageEnglish
Pages (from-to)14-22
JournalInternational Journal of Industrial Organization
Volume29
Issue number1
DOIs
Publication statusPublished - 2011

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