Excessive Competition for Headline Prices

36 Pages Posted: 13 May 2016 Last revised: 5 Feb 2021

See all articles by Roman Inderst

Roman Inderst

Goethe University Frankfurt

Martin Obradovits

Goethe University Frankfurt

Multiple version iconThere are 2 versions of this paper

Date Written: January 02, 2021

Abstract

When firms can hide charges and consumers are prone to salient or relative thinking, this may have severe welfare consequences. The ensuring greater competition on headline prices, far from protecting consumers, may distort their choice and induce firms to offer inefficiently low product quality. As more intense competition leads to a larger pass-through of shrouded charges into lower headline prices, which aggravates these problems, competition policy alone cannot correct market outcomes. When competition is however complemented by effective consumer protection, high-quality firms have sufficient incentives to unshroud hidden charges, disciplining firms’ choice of quality and restoring efficiency.

Keywords: Shrouded Charges, Hidden Fees, Price Competition, Shopping, Attention, Salience, Unshrouding

JEL Classification: D11, D18, D21, D43, D60, L11, L13, L15

Suggested Citation

Inderst, Roman and Obradovits, Martin, Excessive Competition for Headline Prices (January 02, 2021). Available at SSRN: https://ssrn.com/abstract=2779196 or http://dx.doi.org/10.2139/ssrn.2779196

Roman Inderst (Contact Author)

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60629
Germany
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HOME PAGE: http://www.wiwi.uni-frankfurt.de/en/departments/finance/lehrstuhl/prof-dr-roman-inderst/team

Martin Obradovits

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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