Confusopoly: Why companies are motivated to deliberately confuse

In this cross-posting from The Conversation Kenan Kalaycı of the University of Queensland argues the companies which simplify their messaging and products will win with customers.

Consumers today have easy access to a wide range of products and services. The task of choosing between hundreds of products or packages each having dozens of different fees however, is the opposite of easy.

Product and price variety gives consumers with varying tastes and usage patterns choice. But the overwhelming complexity of markets may have an anti-competitive effect: competition between firms is weaker when consumers are confused. Recent economic theory recognises the possibility that companies might have incentives to intentionally confuse their consumers by spuriously differentiating their products or by using complex price schedules.

There is also an increasing amount of empirical evidence that documents consumer biases such as myopia in decision making, choice overload and status-quo bias, that can potentially be taken advantage of by companies. In the market context, my own research shows that price and product complexity can be used by firms to soften the level of price competition in markets. Obfuscation leads to both frustration and mistaken choices at the consumer level and overall higher prices at the market level.