CFDP 2264R

Improved Information in Search Markets

Author(s): 

Publication Date: November 2020

Revision Date: June 2022

Pages: 28

Abstract: 

How will an improved information environment affects competition and market performance when consumers face search frictions? This paper provides a unified way to model information improvement that makes the search pool more “selective” (e.g., due to personalized recommendations), or more “informative” (e.g., due to the availability of more detailed product information). Information improvement tends to induce consumers to search less, intensify price competition and benefit consumers, if the search friction is small, or if information improvement truncates the match utility distribution from below. More generally, however, it is also possible for information improvement to raise the market price and harm consumers.

Keywords: consumer search, personalized recommendations, information improvement, price competition

JEL Classification Codes:  D43, D83, L13

JEL Classification Codes: D43D83L13

See CFDP Version(s): CFDP 2264