TY  - RPRT
        AU  - Kosfeld, Michael
AU  - Schüwer, Ulrich
        TI  - Add-on Pricing, Naive Consumers, and the Hidden Welfare Costs of Education
        PY  - 2011/Oct/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 6061
        UR  - https://www.iza.org/index.php/publications/dp6061
        AB  - Previous research shows that firms shroud high add-on prices in competitive markets with naive consumers leading to inefficiency. We analyze the effects of regulatory intervention via educating naive consumers on equilibrium prices and welfare. Our model allows firms to shroud, unshroud, or partially unshroud add-on prices. Results show that consumer education may increase welfare; however, it may also decrease welfare if education is insufficient to alter the equilibrium information and pricing strategy of firms. Educating consumers may do more harm than good and should thus only be considered if the regulator is sufficiently well informed about consumer and firm behavior.
        KW  - welfare
KW  - regulation
KW  - competition
KW  - bounded rationality
KW  - consumer protection
        ER  -