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Optimal Information Design for Search Goods

Author

Listed:
  • Michael Choi
  • Kyungmin Kim
  • Marilyn Pease

Abstract

We consider a monopoly pricing problem in which a consumer with an uncertain valuation of a search good receives a signal of value before deciding whether to visit the seller. She discovers her true value upon visiting and before purchase. We characterize the consumer-optimal and seller-worst signals in such an environment and deliver two main insights. First, both the consumer-optimal and seller-worst signals generate a unit-elastic demand. Second, the two signals coincide if and only if visitation costs are sufficiently small.

Suggested Citation

  • Michael Choi & Kyungmin Kim & Marilyn Pease, 2019. "Optimal Information Design for Search Goods," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 550-556, May.
    • Handle: RePEc:aea:apandp:v:109:y:2019:p:550-56
    Note: DOI: 10.1257/pandp.20191101
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    File URL: https://www.aeaweb.org/doi/10.1257/pandp.20191101
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    Citations

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    Cited by:

    1. Toomas Hinnosaar & Keiichi Kawai, 2020. "Robust pricing with refunds," RAND Journal of Economics, RAND Corporation, vol. 51(4), pages 1014-1036, December.
    2. Mark Armstrong & Jidong Zhou, 2022. "Consumer Information and the Limits to Competition," American Economic Review, American Economic Association, vol. 112(2), pages 534-577, February.
    3. Zhou, Jidong, 2021. "Mixed bundling in oligopoly markets," Journal of Economic Theory, Elsevier, vol. 194(C).
    4. Pak Hung Au & Mark Whitmeyer, 2021. "Attraction Versus Persuasion," HKUST CEP Working Papers Series 202102, HKUST Center for Economic Policy.
    5. Mustafa Dogan & Ju Hu, 2022. "Consumer search and optimal information," RAND Journal of Economics, RAND Corporation, vol. 53(2), pages 386-403, June.
    6. Teddy Mekonnen & Zeky Murra-Anton & Bobak Pakzad-Hurson, 2023. "Persuaded Search," Papers 2303.13409, arXiv.org, revised Oct 2023.

    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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