Shrouded attributes, consumer myopia, and information suppression in competitive markets
By: Xavier Gabaix, David Laibson.
Contributors: Laibson, David I.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11755; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11755.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Consumer behavior -- Mathematical models.; Marketing -- Mathematical models.
Description: "Bayesian consumers infer that hidden add-on prices (e.g.  the cost of ink for a printer) are likely to be high prices.  If consumers are Bayesian, firms will not shroud information in equilibrium.  However, shrouding may occur in an economy with some myopic (or unaware) consumers.  Such shrouding creates an inefficiency, which firms may have an incentive to eliminate by educating their competitors' customers.  However, if add-ons have close substitutes, a "curse of debiasing" arises, and firms will not be able to profitably debias consumers by unshrouding add-ons.  In equilibrium, two kinds of exploitation coexist.  Optimizing firms exploit myopic consumers through marketing schemes that shroud high-priced add-ons.  In turn, sophisticated consumers exploit these marketing schemes.  It is not possible to profitably drive away the business of sophisticates.  It is also not possible to profitably lure either myopes or sophisticates to non-exploitative firms.  We show that informational shrouding flourishes even in highly competitive markets, even in markets with costless advertising, and even when the shrouding generates allocational inefficiencies"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 12/8/2005.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.