Düsseldorf – EU rules aimed at preventing misleading discounts have weakened competition and increased price levels. While the regulations improve transparency in advertised price reductions, a new study by the Düsseldorf Institute for Competition Economics (DICE) at Heinrich Heine University Düsseldorf shows that consumers ultimately pay for this additional transparency through higher prices.

The study examines the effects of the revised EU Price Indication Directive, which requires advertised discounts to be based on the lowest price charged during the previous 30 days. The aim of the regulation is to prevent artificially inflated discounts.

For their study, Junior Professor Dr. Reinhold Kesler and Professor Dr. Alexander Rasch combined archived Amazon product pages with detailed product and pricing data from Germany, France, the United Kingdom, and the United States. Using a difference-in-differences approach, they compare pricing behavior before and after the introduction of the Directive, as well as across countries within and outside the European Union.

Discounts Decline – Prices Increase

The study identifies substantial changes in the pricing behavior of Amazon sellers:

• Advertised discounts declined by around 16 percentage points following the introduction of the Directive, representing roughly a 50 percent reduction compared with the previous level.
• Average selling prices increased by around one to two percent after the Directive came into force, while the number of price reductions fell by approximately ten percent.

These effects are particularly pronounced in France, where Amazon sellers have largely implemented the EU requirements. The impact is also stronger in product categories in which discounts had already been an especially important competitive instrument before the reform.

"The regulation prevents misleading price claims and increases transparency in advertised discounts. At the same time, our findings show that sellers respond by offering price reductions less frequently, leading to higher average selling prices," explains Junior Professor Dr. Reinhold Kesler.

To explain these effects, the authors developed an accompanying theoretical model. The model shows that discounts not only provide information to consumers but also intensify competition among sellers. When major discount campaigns are restricted by regulation, discount-based competitive strategies become less attractive. The result is fewer promotional price reductions and higher regular selling prices.

"Discounts are an important instrument of competition. Restricting their use changes firms' incentives, with measurable consequences for both prices and the frequency of price reductions," says Professor Dr. Alexander Rasch.

Key Implications for Consumer Policy

The findings provide important lessons for the design of future consumer policy. Transparency regulations influence not only how prices are presented but also how firms compete with one another. The study highlights that regulatory measures targeting so-called 'dark patterns'—website design practices intended to manipulate consumer decisions—should therefore be evaluated not only from the perspective of consumer information but also with regard to their effects on firms' competitive strategies.

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Contact: 

Marc Feist, feist@dice.hhu.de, Tel.: 0211-81-15251