Shrouding add-on information: an experimental study

Hans-Theo Normann, Tobias Wenzel

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We explore how increased competition affects firms’ obfuscation strategies in a laboratory experiment. Firms sell a base good and an add-on product. Besides choosing the base-good price, sellers take an action that mimics the effects of shrouding the add-on product. Shrouding is an equilibrium but an unshrouding equilibrium coexists. In our experiment, more competition matters, in that only duopolistic markets are frequently shrouded whereas four-firm markets are not. With repeated interaction, shrouding rates do not increase. However, the opportunities to shroud facilitate tacit collusion on the base-good price for the duopolies: the unshrouding equilibrium serves as a credible punishment if deviations occur.
Original languageEnglish
Pages (from-to)1705-1727
Number of pages23
JournalThe Scandinavian Journal of Economics
Volume121
Issue number4
Early online date19 Jul 2018
DOIs
Publication statusPublished - 1 Oct 2019

Keywords

  • Add-on price
  • non-attentive consumers
  • shrouding

ASJC Scopus subject areas

  • Economics and Econometrics

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