The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition

CCP Working Paper No. 05-09

Posted: 31 Oct 2005

See all articles by Chris M. Wilson

Chris M. Wilson

School of Business and Economics, Loughborough University

Date Written: October 2005

Abstract

Within a one-shot, duopoly game, we show that firms cannot use false in-store price comparisons to deter rational consumers from further beneficial price search in an effort to create market power. However, by introducing a consumer protection authority that monitors price comparisons, we formalise Nelson's (1974) conjecture by showing that 'middle-order' monitoring can actually facilitate the deception of fully rational consumers, to deter them from otherwise optimal search. Despite this effect, we show that no increase in monitoring can ever harm consumers thanks to a second, larger effect that improves consumer information and increases the intensity of price competition.

Keywords: Comparative Price Advertising, Deception, Obfuscation, Cheap Talk

JEL Classification: L10, D43, D83

Suggested Citation

Wilson, Chris M., The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition (October 2005). CCP Working Paper No. 05-09, Available at SSRN: https://ssrn.com/abstract=826457 or http://dx.doi.org/10.2139/ssrn.826457

Chris M. Wilson (Contact Author)

School of Business and Economics, Loughborough University ( email )

Loughborough, LE11 3TU
Great Britain

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