Publication Date: November 2020
Revision Date: June 2022
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, L13CFDP 2264