Consumer Search and Choice Overload

Volker Nocke and Patrick Rey

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We study a model in which a monopoly seller decides which among a set of heterogeneous products to offer, and what prices to charge, and consumers engage in costly (random) sequential search to learn prices and valuations. We show that the equilibrium exhibits choice overload: The larger the product line, the fewer consumers start searching. We provide conditions under which the equilibrium size of the product line is socially excessive (or insufficient). We also characterize equilibria when the seller can position products, thereby allowing the possibility of directed search, and disclose product identity. We show that the best equilibrium for the seller may involve randomizing over product positioning and inducing inefficient search. Finally, we extend our analysis to that of a platform choosing which sellers to host.

Keywords: sequential consumer search; product variety; choice overload; multiproduct firm; platform (search for similar items in EconPapers)
JEL-codes: D42 L12 L15 (search for similar items in EconPapers)
Pages: 83
Date: 2021-08
New Economics Papers: this item is included in nep-com, nep-dcm, nep-isf, nep-mic and nep-reg
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Citations: View citations in EconPapers (1)

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Working Paper: Consumer Search and Choice Overload (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2021_315

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