Information and Prices with Capacity Constraints
AbstractIn the theoretical literature on consumer search, one conclusion is nearly universal: as buyers become better able to observe and compare prices ex ante, sellers will set lower prices in equilibrium. In this paper, I examine a standard consumer search model with one small -- yet often relevant -- additional restriction: I assume that sellers are capacity constrained. In this environment, I illustrate that the conventional wisdom regarding information and prices does not necessarily hold: having more informed consumers can lead to a decrease in prices, have no effect at all, or even lead to an increase in prices.
CitationLester, Benjamin. 2011. "Information and Prices with Capacity Constraints." American Economic Review, 101 (4): 1591-1600. DOI: 10.1257/aer.101.4.1591
- D11 Consumer Economics: Theory
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms