Shrouding add-on information: an experimental study

Hans-Theo Normann; Tobias Wenzel

doi:10.1111/sjoe.12319

Shrouding add-on information: an experimental study

Hans-Theo Normann, Tobias Wenzel

Department of Economics

Research output: Contribution to journal › Article › peer-review

3 Citations (SciVal)

70 Downloads (Pure)

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 language	English
Pages (from-to)	1705-1727
Number of pages	23
Journal	The Scandinavian Journal of Economics
Volume	121
Issue number	4
Early online date	19 Jul 2018
DOIs	https://doi.org/10.1111/sjoe.12319
Publication status	Published - 1 Oct 2019

Keywords

Add-on price
non-attentive consumers
shrouding

ASJC Scopus subject areas

Economics and Econometrics

Access to Document

10.1111/sjoe.12319

gl_12_accepted_manuscript (PDF)
This is the peer reviewed version of the following article: Normann, H-T., & Wenzel, T. (2019). Shrouding add-on information: an experimental study. Scandinavian Journal of Economics, 121(4), 1705-1727, which has been published in final form at https://onlinelibrary.wiley.com/doi/full/10.1111/sjoe.12319. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Accepted author manuscript, 1.64 MB

Cite this

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AB - 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.

KW - Add-on price

KW - non-attentive consumers

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JF - The Scandinavian Journal of Economics

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ER -

Shrouding add-on information: an experimental study

Abstract

Keywords

ASJC Scopus subject areas

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