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Consumer information and the limits to competition

Mark Armstrong and Jidong Zhou ()

No 14162, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class of signal structures which allow pure-strategy pricing equilibria, we derive signal structures which are optimal for firms and those which are optimal for consumers. The firm-optimal signal structure amplifies the underlying product differentiation, thereby relaxing competition, while ensuring that consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal structure dampens differentiation, which intensifies competition, but induces some consumers with weak preferences between products to buy their less-preferred product. The analysis sheds light on the limits to competition when the information possessed by consumers can be designed flexibly.

Keywords: Bertrand Competition; information design; Online platforms; product differentiation (search for similar items in EconPapers)
JEL-codes: D43 D47 D83 L13 L15 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

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Related works:
Working Paper: Consumer Information and the Limits to Competition (2021) Downloads
Working Paper: Consumer Information and the Limits to Competition (2019) Downloads
Working Paper: Consumer information and the limits to competition (2019) Downloads
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