We consider a variation on the classic Weitzman search problem: competing firms with products of unknown quality may design how much information a consumer's visit will glean. After observing these information structures, the consumer then decides how to search sequentially across the firms for a high value product. If there are no search frictions, then there is a unique symmetric equilibrium in pure strategies, and the firms are not fully informative. With search frictions, the information a visit will reveal depends in a systematic way on the ex-ante probability that a firm's product is high quality. When the expected quality of the product is sufficiently high , there is a unique symmetric equilibrium in which firms are fully informative. There, a small search cost leads to the perfect competition level of information provision--consumers gain when firms are forced to compete on information . Conversely, in the low and medium expected quality cases there are no pure strategy equilibria. Instead, firms mix over a continuum of levels of information : in the low expected quality case they provide full information with probability zero; and in the medium expected quality case they provide full information with positive probability. In both cases there are mixed strategy equilibria in which the firms' realized information structures are Blackwell comparable. Moreover, though recall is permitted, in each case there are equilibria in which the consumer never returns .
We consider a model of oligopolistic competition in a market with search frictions, in which competing firms with products of unknown quality advertise how much information a consumer's visit will glean. We characterize the unique symmetric equilibrium of this game, which, due to the countervailing incentives of attraction and persuasion, generates a payoff function for each firm that is linear in the firm's realized effective value. If the expected quality of the products is sufficiently high (or competition is sufficiently fierce), this corresponds to full information--search frictions beget the first-best level of information provision. If not, this corresponds to information dispersion--firms randomize over signals. If the attraction incentive is absent (due to hidden information or costless search), firms reveal less information and information dispersion does not arise .
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variation on the classic Weitzman search problem:
model of oligopolistic competition in a market with search frictions, in which
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may design
advertise
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After observing these information structures, the consumer then decides how to search sequentially across the firms for a high value product. If there are no search frictions, then there is a
We characterize the
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in pure strategies, and the firms are not fully informative. With search frictions,
of this game, which, due to the countervailing incentives of attraction and persuasion, generates a payoff function for each firm that is linear in
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information a visit will reveal depends in a systematic way on the ex-ante probability that a
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product is high quality. When
realized effective value. If
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product
products
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, there is a unique symmetric equilibrium in which firms are fully informative. There, a small search cost leads to the perfect competition
(or competition is sufficiently fierce), this corresponds to full information--search frictions beget the first-best
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provision--consumers gain when firms are forced to compete on information . Conversely, in the low and medium expected quality cases there are no pure strategy equilibria. Instead, firms mix over a continuum of levels of information : in the low expected quality case they provide full information with probability zero; and in the medium expected quality case they provide full information with positive probability. In both cases there are mixed strategy equilibria in which the firms' realized information structures are Blackwell comparable. Moreover, though recall is permitted, in each case there are equilibria in which the consumer never returns
provision. If not, this corresponds to information dispersion--firms randomize over signals. If the attraction incentive is absent (due to hidden information or costless search), firms reveal less information and information dispersion does not arise