Issues facing the modern consumer : topics in industrial organisation and decision-making

This thesis deals with specific topics within industrial organisation and consumer choice. The first chapter “Price Comparison Websites” deals with a new and growing multi-billion dollar industry that has emerged and flourished over the last two decades. Price comparison websites (PCWs) or ‘web aggregators’ are poised to benefit consumers by increasing competitive pricing pressure on firms by acquainting shoppers with more prices. However, these sites also charge firms for sales which feeds back to raise prices. I find that the introduction of a PCW increases prices for all consumers. I then consider market outcomes with competing PCWs, fee-transparency, price discrimination and costly search. The findings suggest the industry may in fact not benefit any consumers, regardless of whether they actually use the sites, and that regulatory solutions are not as simple as they may seem. The second chapter “Multi-Attribute Decision by Sampling: An Account of the Attraction, Compromise and Similarity Effects” (MADS) proposes and tests a theory that offers an explanation of the three major puzzles, known as ‘context effects’, observed in multi-attribute choice: the attraction, compromise and similarity effects. Existing models within the judgement and decision-making (JDM) literature all propose complex choice architectures that cannot explain all three effects for the same reason and in most cases, the models are only computationally solvable. Our approach is based on a single mechanism, able to explain all three effects simultaneously and permits analytic expressions for choice probabilities. MADS combines and extends three independentlydeveloped ideas from psychology: (i) that individuals compare choice alternatives with comparison items; (ii) that comparisons are based on simple dominance relations; and (iii) that comparison items are systematically influenced by the choice set faced. In a novel experimental design involving 1,200 online participants and real-world data on hotel stays, we find support for our theory’s account. In fact, our treatment was strong enough to make the classic context effects appear and disappear. It is concluded that a single-mechanism model, Multi-Attribute Decision by Sampling, can account for the three classic context effects. In the third chapter “E-Cigarettes: The Extent and Impact of Complementary Dual-Use”, we offer one of the first studies of the electronic cigarette market from an economic perspective. We apply the classic economic notion of complements and substitutes to electronic and conventional cigarettes. The work examines the validity of the common assumption that smokers adopt e-cigarettes to reduce (i.e., substitute) their consumption of traditional cigarettes. We ran an online survey to assess the motivations of users of both products, referred to as dual-users. The results show 37% of dual-users regard e-cigarettes primarily as a complement to conventional cigarettes. Using our survey together results alongside publicly-available US data, we calibrate a cost-benefit analysis and show that complementary use could wipe out up to 57% of the financial benefits e-cigarettes offer to society.