Affiliation:
1. CY Cergy Paris Université, CNRS, THEMA, 33 boulevard du Port Cergy‐Pontoise 95011 France
2. Social and Decision Sciences Carnegie Mellon University, 5000 Forbes Avenue Pittsburgh Pennsylvania 15213 U.S.A
Abstract
We model firms' quality disclosure and pricing in the presence of cursed consumers, who fail to be sufficiently skeptical about undisclosed quality. We show that cursed consumers are exploited in duopoly if firms are vertically differentiated, if there are few cursed consumers, and if average product quality is high. Three common consumer protection policies that work under monopoly, that is, mandatory disclosure, third party disclosure and consumer education, may all increase exploitation and decrease welfare. Even where these policies improve welfare, they often lead to a reduction in consumer surplus. Our conclusions hold in extensions with endogenous quality and horizontal differentiation.
Subject
Economics and Econometrics,General Business, Management and Accounting,Accounting
Cited by
1 articles.
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1. Selective Disclosure;SSRN Electronic Journal;2024