Template-Type: ReDIF-Paper 1.0
Title: Deception and Competition in Search Markets
Author-Name: Tobias Gamp
Author-Email: 
Author-Name: Daniel Kraehmer
Author-Email: 
Classification-JEL: D18, D21, D43, D83

Keywords: Deceptive product, Inferior product, Naivete, Consumer Search


Abstract: We study the interplay between deception and consumer search in a search market where
firms may deceive some naive consumers with inferior products that display hidden (bad)
attributes. We derive an equilibrium in which both superior and inferior quality is offered
and show that as search frictions vanish, superior goods are entirely driven out of the market.
Deception harms sophisticated consumers, as it forces them to search longer to find a
superior product. We argue that policy interventions that reduce search frictions such as the
standardization of price and package formats may harm welfare. In contrast, reducing the
number of naive consumers through transparency policies and education campaigns as well
as a minimum quality standard can improve welfare.

Note: 
Length: 53
Creation-Date: 2018-05
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp014
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2018_014