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Consumer Information and Firm Pricing: Negative Externalities from Improved Information

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Author Info
Anderson, Simon P
Renault, Regis

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Abstract

We analyze the effect of consumer information on firm pricing in a model where consumers search for prices and matches with products. We consider two types of consumers. Uninformed consumers do not know in advance their match values with firms, whereas informed consumers do. Prices are lower the greater the proportion of uninformed consumers. Hence uninformed consumers exert a positive externality on the others, in contrast to standard results. This leads to socially excessive investment in gathering prior information when aggregate demand is price-sensitive. Copyright 2000 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Publisher Info
Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 41 (2000)
Issue (Month): 3 (August)
Pages: 721-42
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Handle: RePEc:ier:iecrev:v:41:y:2000:i:3:p:721-42

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  1. Anthony Creane, 2008. "A note on welfare-improving ignorance about quality," Economic Theory, Springer, vol. 34(3), pages 585-590, March. [Downloadable!] (restricted)
  2. Simon P. Anderson & Regis Renault, 2006. "Advertising Content," American Economic Review, American Economic Association, vol. 96(1), pages 93-113, March. [Downloadable!] (restricted)
    Other versions:
  3. Simon P. Anderson & Régis Renault, 2006. "comparative Advertising," THEMA Working Papers 2006-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  4. Simon P. Anderson & Regis Renault, 1999. "Pricing, product diversity, and search costs: a Bertrand-Chamberlin-Diamond model," Virginia Economics Online Papers 335, University of Virginia, Department of Economics. [Downloadable!]
    Other versions:
  5. Galeotti, Andrea, 2005. "Consumers networks and search equilibria," Working Papers 1225, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
    Other versions:
  6. Ian McCarthy, 2008. "Advertising Intensity and Welfare in an Equilibrium Search Model," Caepr Working Papers 2008-003, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington. [Downloadable!]
  7. José Luis Moraga-González & Zsolt Sándor & Matthijs R. Wildenbeest, 2008. "Nonparametric Estimation of the Costs of Non-Sequential Search," Tinbergen Institute Discussion Papers 07-102/1, Tinbergen Institute. [Downloadable!]
    Other versions:
  8. Maria Arbatskaya & Hideo Konishi, 2005. "Referrals in Search Markets," Boston College Working Papers in Economics 614, Boston College Department of Economics, revised 19 Jun 2008. [Downloadable!]
    Other versions:
  9. John Kennes & Aaron Schiff, 2006. "Informational Intermediation and Competing Auctions," Discussion Papers 06-02, University of Copenhagen. Department of Economics. [Downloadable!]
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