Consumer Naivete and Competitive Add-On Pricing on Platforms

Two sellers trade vertically and horizontally differentiated goods on a platform which charges them a commission fee. Some consumers are naive and do not observe, or consider, add-on prices until after they commit to buying the base good from a seller. We address the following questions. First, how do consumer naivete and costs asymmetries (arising from differences in fees) influence pricing strategies. Second, we examine the welfare loss arising from sub-optimal decisions made by naive consumers who buy the bundle, but fail to factor in its total price at the outset. Third, how does naivete affect seller and platform payoffs