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Search, Differentiated Products, and Obfuscation

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  • Gamp, Tobias

Abstract

Consumers buy products even if they find it too time-consuming to evaluate products carefully. I present a simple market model with sequential consumer search and differentiated products in which consumers may purchase products without evaluation. In a market with evaluation cost heterogeneity and endogenous consumer participation, market prices and profits may fall with increasing product diversity. Resulting concerns that the market may fail to provide the welfare optimal variety of products are gratuitous if product diversity is endogenized. Firms find it nonetheless individually rational to offer niche products. I endogenize evaluation costs and interpret this as the firms opportunity to aggravate the acquisition of information by obfuscation. A firm s equilibrium strategy whether to obfuscate product information is monotonic in product diversity: while obfuscation is individually rational for high product diversity, firms simplify information acquisition if product diversity is low.

Suggested Citation

  • Gamp, Tobias, 2015. "Search, Differentiated Products, and Obfuscation," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112886, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc15:112886
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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