Consider the amount of price variation that you have found. Discuss possible explanations and include those relating to "tourist trap" or other models based on imperfect consumer information.

Essay by lostwarriorsUniversity, Bachelor'sB-, March 2004

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Consumer always face the problems of not knowing which stores sell a good at the lowest price and how quality varies across brands. They know that price do vary on a same product across brands, but they do know not what that price difference represents, for the better qualities that product possess? But are these better qualites worth paying that extra difference in price? If consumers are provided by perfect information about product prices, attributes or quality, their buying behaviour can be altered and thereby affects market structure. In relation to simple economics market structure theory, perfect competition is a market structure in which both the supplier and consumer have perfect information about the product, consumers therefore have to power to choose the cheapest product. Firms are then forced to lower their price to an optimal level in order to compete and profits are also reduced to a minimum as a result.

However, in real life, the existence of a perfect competition seems impossible and only limited information is available to consumers. Hence, firms may have the incentives to reduce consumers' information in order for them to gain abnormal profits.

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