This paper presents a model in which a firm attempts to gain market power by pricing above the competitive market price and simply trying to persuade illinformed consumers not to search for other lower priced firms. Fictitious price comparisons, or false sale signs could be used in this way to deceptively and profitably deter consumer search. A simplified model shows how this mechanism could ex...

An attractive feature of competitive markets is that they maximize the sum of consumer and producer surplus. Producer and consumer surplus are shown in the market supply and market demand diagram in Figure 7-4. Recall that the producer surplus for all producers is the area above the supply curve and below the market price line, and that the consumer surplus for all consumers is the area below t...

Recent reforms in the Turkish electricity sector since 2001 aim to introduce a tariff system that reflects costs. This is expected to affect the production and consumer prices of electricity. The changes in electricity prices are then reflected in production costs in other segments of the economy. Subsequently, producer and consumer prices will be affected. The potential impact of the changes i...

We analyze a market where the consumer must rely on experts to identify the correct type of service. Medical services, repair services and various types of consulting and advisory services belong to this broad category. Our focus is on situations where the diagnosis of the consumer’s needs is costly and the expert’s effort is unobservable. We develop a model where experts offer competing contra...

To examine the effect of the variance of consumer ratings on product pricing and sales we develop a model which considers goods that are characterized by two types of attributes: experience attributes and experience attributes that were transformed in search attributes by consumer ratings that we call informed search attributes. For pure informed search goods, we find that with increasing varia...

The paper develops the idea that brand loyalty is a rational thing for a consumer to have. The reason is that a consumer’s experience with a brand creates user skills which make that brand more useful to the consumer than other brands, even though these, given the same experience, would be equally useful. In a brand switching model this implies that the consumer will switch brands only if there...

We analyze the welfare consequences of a monopolist having additional information about consumers’tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination". We show that the segmentation and pricing induced by the additional information can achieve every combin...