‘What is Important is Seldom Urgent and What is Urgent is Seldom Important’ : A Study of the Strategic Implications of the Urgency Effect in a Competitive Setting

Acknowledgments. The quote included in the title of the paper is due to Dwight D. Eisenhower, 34th president of the USA. I am grateful to an anonymous referee, Ramses Abul Naga, Álvaro Delgado Vega, Frans de Vries, and Raghul Venkatesh for their detailed comments. I would also like to thank the seminar audience at the University of Málaga and the participants to the 2021 OLIGO workshop (Maastricht). Financial support from the University of Aberdeen Business School is gratefully acknowledged. Any error is my own responsibility.Peer reviewedPublisher PD

Choice Complexity and Market Competition

Consumers often find it hard to make correct value comparisons between market alternatives. Part of this choice complexity is the result of deliberate obfuscation by firms. This review synthesizes a theoretical literature that analyzes the role of choice complexity in otherwise competitive markets. I identify two general classes of market models in the literature: (a) The obfuscation strategy of firms is an independent framing device that affects the probability with which consumers make correct comparisons, and (b) market alternatives are multiattribute objects, and obfuscation is captured by lopsided location in attribute space, lowering the probability of being dominated by another market alternative. I address the following key questions: What determines the amount of choice complexity in market equilibrium? What is the relation between choice complexity and payoff-relevant aspects of the market outcome? What is the role of consumer protection measures? The models surveyed in this review suggest that equilibrium obfuscation and choice complexity increase in response to intensified competition, mitigating the positive effect of competition on consumer welfare. However, equilibrium effects can also attenuate the positive welfare effects of regulatory interventions

Duopolistic competition with choice-overloaded consumers

We thank Luke Froeb, Paola Manzini, Patrick Rey, Ariel Rubinstein, Yuval Salant, Rann Smorodinsky, Hugo Sonnenschein, David Ulph, Nikolaos Vettas, Rakesh Vohra, audiences at Bounded Rationality in Choice (2016, Northwestern), Bounded Rationality & Mechanism Design (2016, Glasgow), St Andrews, Technion, Athens University of Economics & Business and especially two referees of this journal for helpful comments. Any errors are our own.Peer reviewedPostprin

Multi-attribute decision by sampling : an account of the attraction, compromise and similarity effects

Consumers’ choices are typically influenced by choice context in ways that standard models cannot explain. We provide a concise explanation of the attraction, compromise and similarity effects. Value is assumed to be determined by simple dominance relations between choice options and sampled comparators, and selection of comparators is assumed to be systematically influenced by the choice options. In one experiment, participants viewed differing selections of market options prior to choice. The classic context effects appeared and disappeared as predicted. In the second experiment, individuals’ sampling distributions of market options were influenced by the choice set as predicted by the model

Pricing and obfuscation with complexity averse consumers

Competition models typically assume that consumers who cannot compare prices, buy randomly. This paper models the idea that firms may obfuscate product information to confuse consumers, but confused consumers prefer simple alternatives. We show that complexity aversion generates competition in obfuscation, in addition to prices. Markets become more transparent, which enables more consumers to understand prices and stimulates price competition. Three results are most interesting. Firstly, even when simple products are the most expensive in the market, firm profit can be lower when confused consumers favour simple products. Secondly, profit is not always lower in less obfuscated markets. Thirdly, obfuscation can only be eliminated if some consumers are always confused and policies to improve consumer sophistication can stimulate obfuscation

Curbing obfuscation: Empower consumers or regulate firms?

This paper develops a market model where consumers refrain from buying products that they are unable to understand and a firm can influence the probability of a consumer understanding its offer. In equilibrium, firms artificially increase product complexity, and firms that offer more transparent products choose on average higher prices. We study two sets of public policies. We show that consumer side policies may have the unintended consequence of encouraging obfuscation while firm side policies are always effective in curbing obfuscation. Interestingly, a consumer side policy can even harm consumers when it protects consumers so much that it greatly increases the marginal effectiveness of obfuscation. Policies on both sides can either increase or decrease social welfare depending on the marginal effectiveness and the marginal cost of obfuscation. Our main insights hold in both asymmetric and symmetric obfuscation equilibria

Reference Dependence and Choice Overload

This paper offers an explanation for choice overload based on reference-dependent preferences. Consumers construct an ideal object that combines the best attributes of all objects in their choice set, and use this as a reference point. When the choice set expands, it is more likely to find a better object, but meanwhile the reference point improves, which makes all existing objects appear worse. We characterize when the latter reference-dependence effect dominates such that choice overload arises. We also show that purchase probability can decrease with object complexity, measured by the number of attributes

Oligopolistic Competition with Choice-Overloaded Consumers

A large body of empirical work has suggested the existence of a "choice overload" effect in consumer decision making: When faced with large menus of alternatives, decision makers often avoid/indefinitely defer choice. A suggested reason for the occurrence of this effect is that the agents try to escape the higher cognitive effort that is associated with making an active choice in large menus. Building on this explanation, we propose and analyse a model of duopolistic competition where firms compete in menu design in the presence of a consumer population with heterogeneous preferences and overload menu-size thresholds. The firms' strategic trade-off is between offering a large menu in order to match the preferences of as many consumers as possible, and offering a small menu in order to avoid losing choice-overloaded consumers to their rival, or driving them out of the market altogether. We study the equilibrium outcomes in this market under a variety of assumptions. We also propose a measure of consumer welfare that applies to this environment and use it alongside our model to provide a critical perspective on regulations that cap the number of products that firms can offer

Competition and Obfuscation

Consumers often find it hard to make correct value comparisons between market alternatives. Part of this "choice complexity" is the result of deliberate obfuscation by firms. This review synthesizes a theoretical literature that analyzes the role of choice complexity in otherwise-competitive markets. I identify two general classes of models in the literature: (a) firms’ obfuscation strategy is an independent "framing device" that affects the probability with which consumers make correct comparisons; (b) market alternatives are multi-attribute objects, and obfuscation is captured by "lopsided" location in attribute space, lowering the probability of being dominated by another market alternative. I address the following key questions: What determines the amount of choice complexity in market equilibrium? What is the relation between choice complexity and payoff-relevant aspects of the market outcome? What is the role of consumer protection measures? The models surveyed in this review suggest that equilibrium obfuscation and choice complexity increase in response to intensified competition, mitigating the positive effect of competition on consumer welfare. However, equilibrium effects can also attenuate the positive welfare effects of regulatory interventions

Reference Dependence and Choice Overload

This paper offers an explanation for choice overload based on reference-dependent preferences. Consumers construct an ideal object that combines the best attributes of all objects in their choice set, and use this as a reference point. When the choice set expands, it is more likely to find a better object, but meanwhile the reference point improves, which makes all existing objects appear worse. We characterize when the latter reference-dependence effect dominates such that choice overload arises. We also show that purchase probability can decrease with object complexity, measured by the number of attributes