Price complexity and buyer confusion in markets

Kalayci, Kenan (2015) Price complexity and buyer confusion in markets. Journal of Economic Behavior and Organization, 111 154-168. doi:10.1016/j.jebo.2015.01.001

Author Kalayci, Kenan
Title Price complexity and buyer confusion in markets
Journal name Journal of Economic Behavior and Organization   Check publisher's open access policy
ISSN 0167-2681
Publication date 2015-03
Year available 2015
Sub-type Article (original research)
DOI 10.1016/j.jebo.2015.01.001
Open Access Status
Volume 111
Start page 154
End page 168
Total pages 28
Place of publication Amsterdam, Netherlands
Publisher Elsevier
Collection year 2016
Language eng
Formatted abstract
This paper reports a duopoly market experiment that examines the effects of price complexity on market prices. In my experimental posted-offer markets, each seller offers an identical good to buyers with homogeneous preferences. First, sellers simultaneously decide on the price and the tariff structure of their good, then buyers make their choices. Each seller can choose to have a one-, two- or three-part tariff. The tariff structure affects neither the value nor the price of the good but influences buyers’ ability to calculate the good's price. The main results show that high-price sellers choose high complexity more often than low-price sellers if buyers are simulated in accordance with the bounded rationality model of Carlin (2009). However, the evidence for this effect is weaker if the buyers are human subjects. Importantly, prices are higher when the sellers can confuse buyers using price complexity than when sellers interact with perfectly rational robot buyers.
Keyword Experiment
Bounded rationality
Buyer confusion
Price complexity
Market power
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2016 Collection
School of Economics Publications
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Citation counts: TR Web of Science Citation Count  Cited 4 times in Thomson Reuters Web of Science Article | Citations
Scopus Citation Count Cited 4 times in Scopus Article | Citations
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Created: Tue, 13 Jan 2015, 14:13:54 EST by Alys Hohnen on behalf of School of Economics