Strategic Confusopoly: Evidence From The UK Mobile Market
Do firms strategically confuse their customers to raise prices? Using a detailed dataset covering virtually all mobile phone tariffs and their handsets in the UK between January 2010 and September 2012, we examine the evolution of quality-adjusted prices and find that they increased until December 2011, even though the industry is mature, technologically homogeneous, and competitive. We show that this price increase closely correlates with the rate at which operators introduced dominated tariffs, suggesting that firms use obfuscation strategies to reduce the transparency of their products, helping them increase the overall level of prices of efficient (i.e. non-dominated) tariffs. We explore alternative explanations, such as increased product differentiation or product proliferation and show that obfuscation by firms is very likely the mechanism at play. This exploratory study is one of the first to offer suggestive evidence of the existence and role of obfuscation as a firm strategy.