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Consumer Search and Choice Overload

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  • Volker Nocke
  • Patrick Rey

Abstract

We study a model in which a monopoly seller decides which among a set of heterogeneous products to offer, and what prices to charge, and consumers engage in costly (random) sequential search to learn prices and valuations. We show that the equilibrium exhibits choice overload: The larger the product line, the fewer consumers start searching. We provide conditions under which the equilibrium size of the product line is socially excessive (or insufficient). We also characterize equilibria when the seller can position products, thereby allowing the possibility of directed search, and disclose product identity. We show that the best equilibrium for the seller may involve randomizing over product positioning and inducing inefficient search. Finally, we extend our analysis to that of a platform choosing which sellers to host.

Suggested Citation

  • Volker Nocke & Patrick Rey, 2021. "Consumer Search and Choice Overload," CRC TR 224 Discussion Paper Series crctr224_2021_315, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2021_315
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp315
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    References listed on IDEAS

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    1. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
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    Cited by:

    1. Sokullu, Senay, 2023. "More Is Better, Or Not? An Empirical Analysis of Buyer Preferences for Variety on the E-Market," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 450-470.

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    More about this item

    Keywords

    sequential consumer search; product variety; choice overload; multiproduct firm; platform;
    All these keywords.

    JEL classification:

    • 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
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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