A More General Model of Price Complexity

This paper analyses a model of competition where the firms set not only prices but also the complexity levels of their prices (which determine how difficult it is for consumers to assess the price offers). Unlike previous work, in this model, the firms’ confusion technology may be non-linear in the aggregate complexity level. The equilibrium probability of using high complexity increases in the number of firms but decreases in the convexity of the confusion technology. In large markets, the firms use high complexity almost surely. However, the industry profit converges to the highest level with concave technologies and to the lowest level with convex technologies. An increase in consumer sophistication, which benefits the consumers, may not reduce market complexity