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.
More recently, Gamp and Kr "ahmer (2017) @cite_24 examine a scenario in which sellers can dupe naive consumers into buying products that are lemons. As in this model (though through a different mechanism), search frictions can be beneficial to consumers. Choi, Dai and Kim (2016) @cite_15 incorporate price competition into a model of Weitzman search and show, among other things, that a reduction in search cost can lead to an increase in price. Lastly, Perez-Richet (2012) @cite_23 considers a model in which candidates can choose whether to disclose information in order to convince a decision maker to adopt their product.
@cite_24 @cite_15 @cite_23
2902186799 2600661545
We study the interplay between deception and consumer search in a search market where firms may deceive some naive consumers with inferior products that display hidden (bad) attributes. We derive an equilibrium in which both superior and inferior quality is offered and show that as search frictions vanish, superior goods are entirely driven out of the market. Deception harms sophisticated consumers, as it forces them to search longer to find a superior product. We argue that policy interventions that reduce search frictions such as the standardization of price and package formats may harm welfare. In contrast, reducing the number of naive consumers through transparency policies and education campaigns as well as a minimum quality standard can improve welfare. We consider an oligopoly model in which consumers engage in sequential search based on partial product information and advertised prices. By applying Weitzman's (1979) optimal sequential search solution, we derive a simple static condition that fully summarizes consumers' shopping outcomes and translates the pricing game among the sellers into a familiar discrete‐choice problem. Exploiting the discrete‐choice reformulation, we provide sufficient conditions that guarantee the existence and uniqueness of market equilibrium and analyze the effects of preference diversity and search frictions on market prices. Among other things, we show that a reduction in search costs raises market prices.