Collusion, inattentive consumers and shrouded prices

Abstract

We explore the incentives of firms to partition and shroud prices in a model where consumers may ignore a price component. In the static game shrouding can only arise under restrictive conditions if the market is sufficiently concentrated and the shrouded price component is sufficiently high. In the dynamic game we find strong pro-collusive effects of shrouding in that firms can more easily collude on shrouded prices than in the static game and collusion is also facilitated compared to standard Bertrand markets. Such collusive strategies are moderated if consumer learning is important.