Spurious complexity and common standards in markets for consumer goods

It has been argued that cognitively constrained consumers respond suboptimally to complex decision problems, and that firms can exploit these limitations by introducing spurious complexity into tariff structures, weakening price competition. We model a countervailing force. Restricting one’s choices to the most easily comparable options is a psychologically well-attested heuristic. Consumers who use this heuristic favour firms that follow common conventions about tariff structures. Because a ‘common standard’ promotes price competition, a firm’s use of it signals that it offers value for money, validating the heuristic. This allows an equilibrium in which firms use common standards and set competitive prices. (100 words) JEL classifications: D83 (search, learning, information and knowledge); L13 (oligopoly and other forms of imperfect competition); L51 (economics of regulation).