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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. Lyu, Chen, 2023. "Information design for selling search goods and the effect of competition," Journal of Economic Theory, Elsevier, vol. 213(C).
    6. Mustafa Dogan & Ju Hu, 2022. "Consumer search and optimal information," RAND Journal of Economics, RAND Corporation, vol. 53(2), pages 386-403, June.
    7. Teddy Mekonnen & Zeky Murra-Anton & Bobak Pakzad-Hurson, 2023. "Persuaded Search," Papers 2303.13409, arXiv.org, revised Aug 2024.

    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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