Obfuscation and Rational Inattention in Digitalized Markets

This paper studies the behavior of competing firms in a duopoly with rational inattentive consumers. Firms play sequential game which they decide to obfuscate their individual prices before on price. Probabilistic demand functions are endogenously determined by consumers’ optimal information strategy, depends firms’ obfuscation choice and unrestricted prior beliefs. We show that may result an equilibrium high where both transparency low no obfuscation, providing argument for market regulation. Lower costs asymmetric beliefs about reduce probability equilibrium. Using data Sweden, we document decrease price complexity corresponding mobile phone subscriptions last two decades. Our model rationalizes these changes explains why persist some but not all digitalized markets.