Collusion and Confusion

Preliminary, do not quote In some markets Þrms offer a plethora of pricing schemes, for which the traditional economic interpretation is that Þrms practice price dis-crimination. We argue that there may be additional reasons for tariff proliferation if consumers have limited search capabilities. Firms may tacitly collude in confusing consumers in order to soften competi-tion: They may adhere to an average price level while still competing for market share through large menus of contracts that either change the risk of switching suppliers or simply divert consumers attention. Alternatively, they may even collude in making switching unattractive and thus collude in two strategic dimensions. JEL