Prominence, Complexity, and Pricing

Abstract

We analyze prominence in a homogeneous product market where two rms simulta- neously choose prices and price complexity levels. Complexity limits competing o¤ers comparability and results in consumer confusion. Confused consumers are more likely to buy from the prominent rm. The nature of equilibrium depends on the prominence level. While the salient rm always randomizes on complexity, the rival chooses lowest complexity for sure with high enough prominence. As consumer surplus is not monotonic in promi- nence, higher prominence may bene t buyers. Conditional on choosing lowest complexity, the prominent rm s average price is lower, which is consistent with confused consumers bias.