Consumer Search Market with Rational Inattention Restricted; Files Only
You, Bowen (Spring 2024)
Published
Abstract
We consider a model of undirected consumer search where consumers flexibly acquire information to learn about the matching value at each seller. Consistent with the consumer search literature, higher search costs induce higher market equilibrium prices. Interestingly, the relationship between unit information cost and equilibrium prices is not monotonic. When the unit information cost is relatively low, sellers set a higher price aiming to only sell to matched consumer. In this case, when the unit information cost increases, the optimal price decreases as sellers provide higher compensation for consumers' information acquisition cost. On the other hand, when the unit information cost is high, sellers set a lower price to discourage consumers from acquiring information, hence sell the product to all visiting consumers. Under such condition, the optimal price increases along with the unit information cost, because the higher information cost limits the consumer surplus from information acquisition.
Table of Contents
Introduction ...... 1
Monopoly Case ...... 1
Stackelberg Case ...... 9
Infinite Horizon Case ...... 14
Comparative Statics ...... 16
Conclusion ...... 20
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File download under embargo until 24 May 2026 | 2024-04-22 03:50:19 -0400 | File download under embargo until 24 May 2026 |
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