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Consumer protection and the incentive to become informed

Author

Listed:
  • Armstrong, Mark
  • Vickers, John
  • Zhou, Jidong

Abstract

We discuss the impact of consumer protection policies on consumer incentives to become informed of the best deals available in the market. In a market with costly consumer search, we find that imposing a cap on suppliers' prices reduces the incentive to engage in search, with the result that prices paid by consumers (both informed and uninformed) may rise. In a related model where consumers have the ability to refuse to receive marketing, we find that this ability softens price competition and can make all consumers worse off.

Suggested Citation

  • Armstrong, Mark & Vickers, John & Zhou, Jidong, 2008. "Consumer protection and the incentive to become informed," MPRA Paper 9898, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:9898
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    References listed on IDEAS

    as
    1. Fershtman, Chaim & Fishman, Arthur, 1994. "The 'perverse' effects of wage and price controls in search markets," European Economic Review, Elsevier, vol. 38(5), pages 1099-1112, May.
    2. Simon P. Anderson & André de Palma, 2007. "Information Congestion: open access in a two-sided market," THEMA Working Papers 2007-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    3. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
    4. Armstrong, Mark, 2008. "Interactions between competition and consumer policy," MPRA Paper 7258, University Library of Munich, Germany.
    5. Il-Horn Hann & Kai-Lung Hui & Sang-Yong T. Lee & Ivan P. L. Png, 2008. "Consumer Privacy and Marketing Avoidance: A Static Model," Management Science, INFORMS, vol. 54(6), pages 1094-1103, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Consumer protection; search; price caps; advertising;
    All these keywords.

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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