Chapter

Inertia I: Price Competition

Spiegler Ran

in Bounded Rationality and Industrial Organization

Published in print February 2011 | ISBN: 9780195398717
Published online September 2011 | e-ISBN: 9780199896790 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780195398717.003.0010
Inertia I: Price Competition

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This chapter analyzes implications of consumer inertia and default bias for market competition. In particular, the link between the competitiveness of the market outcome and the equilibrium level of consumer switching is explored. The chapter highlights the role that framing of market alternatives plays in exacerbating inertia by lowering their comparability. It is shown that consumer protection policies that aim to weaken inertia by fostering comparability may be harmful to consumer welfare.

Keywords: inertia; default bias; competition; limited comparability; consumer switching; framing; consumer protection; choice overload

Chapter.  9313 words. 

Subjects: Economics

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