Confusopoly Pricing – Companies Intentionally Trick Consumers Instead of Competing

Banks, Finance/Insurance, Energy, Airline and Telecommunications companies are all examples of confusopolies – organisations with similar products who intentionally confuse customers instead of competing on price.

The word “confusopoly” was originally coined by Dilbert cartoonist Scott Adams in his book The Dilbert Future. Adams has an MBA in economics and management. He uses this knowledge along with his cynical cartoonist insight into how people think to explain the idea:

Any company’s incentive is to transfer the greatest amount of money from consumers to stockholders. And to do that in a competitive industry you usually end up with what I call confusopolies.

A confusopoly is a situation in which companies pretend to compete on price, service, and features but in fact they are just trying to confuse customers so no one can do comparison shopping.

Cell [mobile] phone companies are the best example of confusopolies. The average consumer finds it impossible to decipher which carrier has the best deal, so carriers don’t have normal market pressure to lower prices. It’s a virtual cartel without the illegal part.

Examples of confusopoly pricing include upfront discounts on 2 year contracts eg: first 3 months free and early disconnection fees eg: $150 penalty for cancelling a contract early.

Australian economist Professor Joshua Gans examined the confusopoly issues in the context of deregulated energy companies and made these findings:

  • When faced with an upfront cost and future options, consumers will over-weight option value and spend too much upfront
  • When faced with an upfront benefits and future avoidable costs, consumers will under-weight ability to avoid costs and spend too little upfront
  • Consumers will under-weight importance of disconnection fees
  • Consumers will under-weight ability to opt out of automated payments to switch in the future
  • Consumers will under-weight future switching costs
  • Consumers will fail to invest in information to make choices transparent
  • Firms will not have an incentive to provide transparency as consumers will demand more upfront to compensate for switching costs later on.
  • Likelihood of consumer choice providing a locus for effective competition is bleak – Energy retailing looks like a confusopoly

The Road to Confusopoly.ppt

Dilbert Comic Strips That Exemplify Confusopolies

I strongly recommend that you subscribe to Scott Adam’s Dilbert blog, watch the animated Dilbert series on DVD and read his books The Dilbert Future and The Dilbert Principle

8 thoughts on “Confusopoly Pricing – Companies Intentionally Trick Consumers Instead of Competing”

  1. The most annoying example is pretending to offer something for free when it is not possible to obtain without a purchase. “25% extra for free” should really say “25% extra for the normal price”. The worst example of this is Foxtel’s “Free Installation” which has been free for at least 10 years. Since a company must reclaim costs through pricing it is not free in any sense but is simply included in the monthly price of the service. Australia has such p*ss-poor advertising laws it is easy for Confusopolies to take control.

  2. This is especially true amongst the telcos. With the advent of number portability, there is no real barrier for people to switch carriers. But carriers are the masters of confusopoly and a simple apples to apples comparison between various plans is quite impossible. Caps, flag falls, included calls, excluded calls, partial discounts… for most people it becomes a question of the known vs. the unknown devil.

    Scott Adams just nails it!

  3. Yeah, getting fooled by the “Confusopoly” is pretty common place these days. Like the word BTW. I notice this on a lot of body products. 25% free etc. pretty snarky advertising. The worst is on junk food. the road to obesity….

  4. I cannot stand when manufacturers change model numbers on the exact same product so that retailers can claim that no other company can beat their prices. They can guarantee the lowest prices on that particular model number. It makes me sick.

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