Are 28 days a month? Price competition with consumer confusion

Abstract

ABSTRACT This paper contributes to the literature of price framing by analysing the effect of temporal price framing. We introduce in a homogeneous duopoly à la Bertrand, where firms compete with an advertised price that is expressed in a certain periodical frame (i.e. 4-week, daily) that could differ from the standard periodical price (for instance, monthly or yearly price). The model focuses on the effect of the perception of the periodical price by consumers and not on the confusion or complexity of the price frames that leads to a product differentiation. Indeed, on equilibrium the two firms choose the same standard and advertised price, but their profits are greater than the standard Bertrand case. This result gives an important insight regarding the 4-week billing antitrust case conducted by the Italian Antitrust Authority and concluded in January 2020.