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Topics in Economic Theory II

Paper Session

Friday, Jan. 4, 2019 10:15 AM - 12:15 PM

Atlanta Marriott Marquis, A701
Hosted By: American Economic Association & Committee on the Status of Women in the Economics Profession
  • Chair: Joyee Deb, Yale University

Consumer Search with Imperfect Vertical-quality Information

Xiangting Hu
,
Harbin Institute of Technology, Shenzhen
Yijuan Chen
,
Australian National University
Li Sanxi
,
Renmin University of China

Abstract

In online markets the vertical product quality is usually not perfectly observed by buyers even upon visiting a store. We incorporate this feature into a consumer search model and examine its impact on market outcomes. In a baseline model where the vertical quality is drawn from a binary support, we show that imperfect vertical-quality information leads to two lines between the market price and consumer's reservation utility, namely the "search value line" that characterizes the consumer's search behavior, and the "price incentive line" that describes the firm's pricing decision. Their intersection determines the equilibrium. In contrast to the literature on consumer search that often assumes perfect information of vertical quality, we show that a reduced search cost will result in a lower consumer surplus and higher market prices. We extend the baseline model to a setting where the support of product quality is a continuum, and consumers can adjust their search intensity to virtually alter the informativeness of the quality signal upon purchase. We show that when the search cost decreases, given that initially the quality signal is sufficiently informative, the consumer surplus will drop, and the market price will increase. When the initial quality signal becomes less informative, consumers can still be better off if they increase the search intensity.

Information and Communication in Organizations

Inga Deimen
,
University of Arizona
Dezso Szalay
,
University of Bonn and CEPR

Abstract

We study a constrained information design problem in an organization.
Since the allocations of information and decision-rights are separated, information is transmitted strategically within the organization. The optimal information structure eliminates conflicts and
serves as a substitute to the allocation of authority in the organization.

Optimal Information Design for Search Goods

Marilyn Pease
,
Indiana University
Kyungmin (Teddy) Kim
,
University of Miami

Abstract

We consider the problem of a consumer with an uncertain valuation of a search good, who receives a noisy signal of value before deciding to search. We characterize the consumer-optimal and seller-worst signals for the monopoly pricing problem in this environment. We have two main insights. First, both the consumer-optimal and seller-worst signals use a conditional distribution given the high value that generates a unit-elastic demand. Second, the consumer-optimal and seller-worst signals coincide if search costs are sufficiently low, but differ for large search costs.
Discussant(s)
Jidong Zhou
,
Yale University
Heski Bar-Isaac
,
University of Toronto
Navin Kartik
,
Columbia University
Ying Chen
,
Johns Hopkins University
JEL Classifications
  • D8 - Information, Knowledge, and Uncertainty
  • L1 - Market Structure, Firm Strategy, and Market Performance