Consider a variation on the classic Weitzman search problem, in which competing firms can choose how much information about their product to reveal to a consumer. If there are no search frictions, there is a unique symmetric equilibrium in pure strategies; and for any market of finite size, the firms are not fully informative. With search frictions, if the expected value of the prize is sufficiently high, there is a unique symmetric equilibrium in which firms are fully informative. Remarkably, a small search cost leads to the perfect competition level of information provision: consumers gain when firms are forced to compete on information.
There are a number of papers in the search literature that bear mentioning as well. In particular, the vein of research that focuses on is relevant. Two such papers are Ellison and Wolitzky (2009) @cite_12 and Ellison and Ellison (2009) @cite_25 . In the first, the authors extend the model of Stahl (1989) @cite_14 by allowing firms to choose the length of time it takes for consumers to learn its price. Allowing for such delays hurts consumers, since obfuscation leads to longer search times and higher prices. Ellison and Ellison, in turn, provide empirical evidence suggesting that as technology has made price search easier for consumers, firms have responded by taking actions that make price search more difficult.
@cite_14 @cite_25 @cite_12
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N identical stores compete by choosing prices for a homogeneous good with constant marginal costs. Consumers search sequentially with perfect recall for the lowest price. One class of consumers, called shoppers, have zero search costs, while all other consumers have a positive search cost, c. There is a unique symmetric Nash equilibrium price distribution with the property that it changes smoothly from "marginal cost pricing" when all consumers are shoppers and or c = 0 and "monopoly pricing" when no consumers are shoppers. Remarkably, as the number of stores increases, the Nash equilibrium becomes more monopolistic. Copyright 1989 by American Economic Association. This paper develops search-theoretic models in which it is individually rational for firms to engage in obfuscation. It considers oligopoly competition between firms selling a homogeneous good to a population of rational consumers who incur search costs to learn each firm's price. Search costs are endogenized: obfuscation is equated with unobservable actions that make it more time-consuming to inspect a product and learn its price. We note two mechanisms by which obfuscation can affect consumer beliefs about future search costs: a direct effect that applies when search costs are convex in time spent searching and a signal-jamming effect that applies when an informational link is present. As long as obfuscation is costless for firms, the presence of either of these mechanisms guarantees that obfuscation must occur in equilibrium, unless consumer search costs are already so high that consumers are willing to purchase at the highest equilibrium price in the absence of obfuscation. Changes in consumer search costs are at least partially offset by changes in the equilibrium level of obfuscation, raising doubts about whether reductions in consumer search costs must make markets more competitive. We also examine patterns of obfuscation and show that higher markups are usually associated with more obfuscation. (This abstract was borrowed from another version of this item.)