Incomplete Information: the Role of Competition

Le résumé en français n'a pas été communiqué par l'auteur.This thesis analyzes the outcomes of competition in settings with incomplete and costly information. The first two chapters explore in depth the incentives of firms to influence the amount of information available for consumers prior to their purchasing decision. In many markets firms have a potential to make comparison of their offers intentionally costly for consumers, for example, by adopting confusing presentation frames. We analyze the strategic choices of firms and relevant policy implications in three different settings: in the markets with homogeneous, vertically and horizontally differentiated goods. We find that higher competition does not necessarily lead to better market outcomes for consumers. The last chapter addresses a more general question as to whether competition leads to more or less informed decisions per unit of costs, in the setting where information is costly to obtain. I compare the adversarial and the inquisitorial systems of law enforcement and characterize the necessary and sufficient conditions for one scheme to dominate another and provide additional arguments in favor of the inquisitorial system. The experimental results of Chapter 1 reinforce the finding that firms that charge higher prices tend to make their price structures complex for understanding. The experimental data also supports the theoretical predictions that an increase in the number of competing firms leads to more costly price comparison for consumers. Furthermore, imposing an upper bound on the cost of comparison that firms can choose lowers market prices both for informed and uninformed consumers and reduces price dispersion. As an implication, a policy that limits the extent to which firms can make it costly for consumers to compare several offers would increase consumer welfare. Chapter 2 extends the existing theoretical framework to accommodate horizontally differentiated products. Firms can choose to make their pricing structure and product features easier or harder to compare against competing offers. We find that price complexity increases with the price charged while product complexity decreases. For a high degree of product differentiation, there is a medium range of prices for which firms choose to make their offers fully transparent. Chapter 3 of this thesis analyses the outcomes of strategic information disclosure under different institutional arrangements: the adversarial and the inquisitorial. A decision-maker (DM) must take a binary decision faced with information provided by two persuaders: a firm that has an intrinsic interest in the final decision, and an expert who reacts only to monetary incentives designed by the DM. Under the adversarial arrangement, the expert is remunerated if the final decision is unfavorable to the firm. Under the inquisitorial arrangement, the remuneration is conditional only on the amount of disclosed information. I characterize the equilibrium of this disclosure game under the two arrangements, and provide the necessary and sufficient conditions for one system to dominate the other with respect to the level of precision of the final decision, net of the total cost of information acquisition. I find additional arguments in favor of the inquisitorial system