The Doubtful Profitability of Foggy Pricing

This paper studies whether competition may induce firms abandoningdeceptive pricing strategies aimed to profit from mistaken choices ofconsumers. The empirical analysis focuses on the pricing practices ofearly U.S. cellular firms, both under monopoly and duopoly. Foggy tariffoptions are those that are dominated by another option or a combinationof other tariff options offered by the firm. I also define a measure offogginess of non-dominated tariffs based on the range of airtime usagefor which they are the least expensive option among those available.Results indicate that firms offer more dominated tariff options in acompetitive market than under monopoly. While markets are profitable,perhaps because they grow or because firms collude, the use of foggytactics is not frequent. However, if the market is more mature, or iffirms do not cooperate, thus reducing the return to their investment,then they commonly turn to foggy pricing.