Costly Comparison and Informational Inertia

Georgy Lukyanov () and Arina Azova

Papers from arXiv.org

Abstract: A price cut can attract consumers while changing what their purchases reveal to later buyers. We study this trade-off in a duopoly with common uncertainty about quality. Consumers have a default seller and may pay to obtain access to the rival together with a private signal. Firms observe purchases and retain their prices between random opportunities to revise them. In a specified pricing experiment, a cut raises current revenue and remains profitable over two arrivals, but loses over three for sufficiently patient firms. The same cut remains profitable when quality is independently redrawn for each buyer. Using analytical arguments and rigorous numerical bounds, we then construct stationary Markov equilibria on three finite price menus in which an informative purchase leads with positive probability to uninformative purchases and unequal prices. These equilibria require infrequent repricing. Finally, at fixed prices, we introduce a small share of consumers who compare cheaply. Expected exit time from a fixed belief interval is of order the inverse square of this share when defaults are hidden, and of order its inverse when defaults are observed.

Date: 2025-09, Revised 2026-10
New Economics Papers: this item is included in nep-com, nep-gth and nep-mic
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