Consumer Information and Firm Pricing: Negative Externalities from Improved Information
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.
|Date of creation:||Feb 1997|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.virginia.edu/economics/home.html|
When requesting a correction, please mention this item's handle: RePEc:vir:virpap:338. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Debby Stanford)
If references are entirely missing, you can add them using this form.