Séminaire GREDEG - Andreas Hefti (Univ. of Zurich)

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"Confusion, polarization and competition"

22-11-2018 - 14h00 à 15h30 - Salle Picasso - GREDEG

Séminaire GREDEG

Andrea Hefti - (Univ. of Zurich) CV


Abstract : We study when firms seek to infuse consumer confusion and when they aim at educating consumers about the choice options in a market with differentiated goods. Contrary to the well studied homogeneous goods case, obfuscation needs not be an equilibrium phenomenon. The chosen type of marketing activities depends critically on the shape of the consumer taste distribution, while the degree of taste differentiation itself surprisingly plays no vital role. If the taste distribution features a concentration of indecisive consumers, confusion is beneficial for firms and obfuscation an equilibrium strategy. On the contrary, confusion is harmful for firms if the taste distribution is polarized in thus that there are strong pre-existing preferential allegiances with the firms. In such a situation, firms seek to educate consumers, possibly by evaporating any pre-existing confusion. Compared to homogeneous goods, the welfare consequences of confusion, should it arise, are more severe as consumers may not only pay higher prices, but also end up with the wrong option. We show that the basic insights regarding the propensity to obfuscate or educate applies more generally to settings where agents choose the transparency of their messages alongside with activities intended at making them more attractive, such as electoral competition for voters.

 

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