Traditional thinking suggests that as competition increases in any market, the range, quality and price of products available to customers increases as suppliers battle for their piece of the pie.

Alas, a recent paper from researchers at Oxford University and the University of Tennessee highlights how this isn’t always the case.

At the heart of the matter is the paradox of excess choice.  The authors found that when consumers are faced with a very complex choice, their difficulty in processing the options available to them can work in the favor of the suppliers.

There are also instances whereby consumers have difficulty accurately assessing the variations in quality that the market provides, with instances abound in a whole range of industries, from aviation to gaming.

It’s also possible to artificially create an illusion of quality via advertising and marketing, which can also have a distorting effect on competition as it makes it hard for consumers to accurately gage the quality of offering available to them.

“When consumers acts with incomplete knowledge, and it is prohibitively difficult to convey to consumers the products’ quality differences, then one cannot assume that more competition will necessarily improve the price-quality mix,” the authors say.

All of which results in distortions in the market whereby increases in price don’t necessarily correspond to increases in quality for consumers.

Or “at times, an increase in competitive pressure may lead to horse meat in your burger rather than better quality beef,” as the authors note.

They conclude that competition authorities need to be aware of this and not fall into the trap of believing that competition automatically translates into quality options for consumers.

How to make better choices

If you’re a consumer in such an environment however, a paper published earlier this year may provide some assistance.

To help people faced with an overwhelming array of choices, the researchers suggest a number of possible strategies.

Participants were invited to try one of three strategies to help them choose the best option from one of 16 choices.  If they made the best choice, they’d be given $25.

The three strategies were:

• Simultaneous choice, in which all 16 choices were considered together.
• Sequential elimination, which began with choosing one option from among four choices. Three additional choices were then added to the one chosen from the first group, and the process continued through five rounds until all but one option was eliminated.
• Sequential tournament, in which four groups of four options were randomly chosen by a computer, and the subjects were asked to choose one option from each group. The options chosen from the first four groups were then put into a finalist group from which the final selection was made.

Participants could use any of the strategies, or indeed all three, and were asked to evaluate their choice at the end of the process.

Interestingly, the tournament like approach seemed to produce the best results. Whilst this was widely disliked by the participants, it did lead to an increase in good choices by around 50 percent.  This approach also took a bit more time than the other strategies.