Improved Information in Search Markets

Zhou, Jidong (2020): Improved Information in Search Markets.

Abstract

This paper studies how an improved information environment affects consumer search and firm competition. We find conditions for information improvement to have unambiguous impacts on search duration, price, and consumer welfare. In many cases consumers benefit from information improvement regardless of how it affects the market price, but there are also cases where information improvement raises price significantly so that consumers suffer from it. Our model provides a unified way to consider the market implications of various types of information improvement such as search advertising, personalized recommendation, filtering, and new display technology.

• Item Type: MPRA Paper
• Language: English
• Keywords: consumer search, price competition, information improvement
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

References

Anderson, S., and R. Renault (1999): "Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model," RAND Journal of Economics, 30(4), 719-735.

Anderson, S., and R. Renault (2000): "Consumer Information and Firm Pricing: Negative Externalities from Improved Information," International Economic Review, 41(3), 721-742.

Armstrong, M., J. Vickers, and J. Zhou (2009): "Prominence and Consumer Search," RAND Journal of Economics, 40(2), 209-233.

Bar-Isaac, H., G. Caruana, and V. Cuñat (2012): "Search, Design, and Market Structure," American Economic Review, 102(2), 1140-1160.

Burdett, K., and K. Judd (1983): "Equilibrium Price Dispersion," Econometrica, 51(4), 955-969.

Burguet, R., and V. Petrikaite (2019): "Targeted Advertising and Costly Consumer Search," mimeo.

Caplin, A., and B. Nalebuff (1991): "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, 59(1), 25-59.

Chateauneuf, A., M. Cohen, and I. Meilijson (2004): "Four Notions of Mean-Preserving Increase in Risk, Risk Attitudes and Applications to the Rank-Dependent Expected Utility Model," Journal of Mathematical Economics, 40(5), 547-571.

Chen, Y., and C. He (2011): "Paid Placement: Advertising and Search on the Internet," The Economic Journal, 121(556), F309-F328.

Chen, Y., Z. Li, and T. Zhang (2020): "Experience Goods and Consumer Search,"mimeo.

Choi, M., Y. Dai, and K. Kim (2018): "Consumer Search and Price Competition," Econometrica, 86(4), 1257-1281.

Choi, M., and L. Smith (2019): "Optimal Sequential Search Among Alternatives," mimeo.

de Corniere, A. (2016): "Search Advertising," American Economic Journal: Microeconomics, 8(3), 156-188.

Diamond, P. (1971): "A Model of Price Adjustment," Journal of Economic Theory, 3(2), 156-168.

Dogan, M., and J. Hu (2019): "Consumer Search and Optimal Information," mimeo.

Eliaz, K., and R. Spiegler (2011): "A Simple Model of Search Engine Pricing," The Economic Journal, 121(556), F329-F339.

Ganuza, J., and J. Penalva (2010): "Signal Orderings Based on Dispersion and the Supply of Private Information in Auctions," Econometrica, 78(3), 1007-1030.

Rhodes, A., and J. Zhou (2019): "Consumer Search and Retail Market Structure," Management Science, 65(6), 2607-2623.

Shaked, M., and G. Shanthikumar (2007): Stochastic Orders. Springer.

Stahl, D. (1989): "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, 79(4), 700-712.

Teh, T., and J.Wright (2019): "Intermediation and Steering: Competition in Prices and Commissions," mimeo.

Tversky, A. (1972): "Elimination by Aspects: A Theory of Choice," Psychology Review, 79(4), 281-299.

Varian, H. (1980): "A Model of Sales," American Economic Review, 70(4), 651-659.

Wolinsky, A. (1983): "Retail Trade Concentration Due to Consumers' Imperfect Information," Bell Journal of Economics, 14(1), 275-282.

Wolinsky, A. (1986): "True Monopolistic Competition as a Result of Imperfect Information," Quarterly Journal of Economics, 101(3), 493-511.

Yang, H. (2013): "Targeted Search and the Long Tail Effect," RAND Journal of Economics, 44(4), 733-756.

Zhong, Z. (2018): "A Model of Search Design," mimeo.

Zhou, J. (2014): "Multiproduct Search and the Joint Search Effect," American Economic Review, 104(9), 2918-2939.

Zhou, J. (2017): "Competitive Bundling," Econometrica, 85(1), 145-172.