Firm Prominence and Consumer Confusion

We examine the interaction between firm prominence and consumer confusion in a duopoly model of price-frame competition. Both frame complexity and frame differentiation are sources of consumer confusion and firms make prominence investments that determine their shares of confused consumers. Under exogenous prominence, a parametric condition that synthesizes the less prominent firm’s trade-offs delineates equilibrium outcomes. When firms make investments, in equilibrium, prominence obtains endogenously and, under mild conditions, firms successfully coordinate on the more effective source of consumer confusion. With exogenous prominence, the impact of consumer policy depends on which source of confusion is more effective. With endogenous prominence, greater market transparency can increase social welfare, consumer surplus, and profits