Attraction versus Persuasion: Information Provision in Search Markets

Pak Hung Au and Mark Whitmeyer

Papers from arXiv.org

Abstract: We consider a model of oligopolistic competition in a market with search frictions, in which competing firms with products of unknown quality advertise how much information a consumer's visit will glean. In the unique symmetric equilibrium of this game, the countervailing incentives of attraction and persuasion yield a payoff function for each firm that is linear in the firm's realized effective value. If the expected quality of the products is sufficiently high (or competition is sufficiently fierce), this corresponds to full information--firms provide the first-best level of information. If not, this corresponds to information dispersion--firms randomize over signals.

Date: 2018-02, Revised 2022-05
New Economics Papers: this item is included in nep-gth and nep-mic
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