Optimal Information Design for Search Goods

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 signal...

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Bibliographic Details
Published in:AEA papers and proceedings 2019-05, Vol.109, p.550-556
Main Authors: Choi, Michael, Kim, Kyungmin, Pease, Marilyn
Format: Article
Language:English
Subjects:
TOPICS IN ECONOMIC THEORY II
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Summary: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.
ISSN:2574-0768
2574-0776
DOI:10.1257/pandp.20191101