Obfuscation of Quality Information for Dual Bounded Rational Consumers

We study the incentives for firms' obfuscation strategies and their impact on social welfare in a market with boundedly rational consumers. We assume that firms obfuscate product information, which can prevent consumers from acquiring type information. Some naive consumers in the markets exhibited limited comprehension and default bias toward higher-quality products. We show that firms chose obfuscation in all cases except those in which consumers have a strong degree of bounded rationality and more pessimistically evaluate themselves as the naive type. This means that for firms, the benefits from second-degree price discrimination are limited and obfuscation may be a more important strategy than informing. We also find that, under certain conditions, obfuscation may result in socially desirable product allocation. This result indicate that careful consideration needs to be given to policies that reduce the incentive for firms to obfuscate, such as increasing the proportion of sophisticated consumers.

Automated summary

In this study, we investigate the motivations behind firms' obfuscation strategies and their impact on social welfare. We find that firms tend to use obfuscation strategies unless consumers exhibit a strong degree of bounded rationality and pessimistic self-evaluation. This suggests that for firms, the benefits of second-degree price discrimination are limited and obfuscation may be a more crucial strategy than information provision. Additionally, under certain conditions, obfuscation can lead to socially desirable product allocation.