Optimal Information Design for Search Goods
AEA Papers and Proceedings
vol. 109,
May 2019
(pp. 550-56)
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.Citation
Choi, Michael, Kyungmin Kim, and Marilyn Pease. 2019. "Optimal Information Design for Search Goods." AEA Papers and Proceedings, 109: 550-56. DOI: 10.1257/pandp.20191101Additional Materials
JEL Classification
- D42 Market Structure, Pricing, and Design: Monopoly
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- L12 Monopoly; Monopolization Strategies
- L15 Information and Product Quality; Standardization and Compatibility