Consumer information and the limits to competition
Mark Armstrong and
Jidong Zhou ()
No 14162, CEPR Discussion Papers from C.E.P.R. Discussion Papers
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)
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic and nep-ore
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Working Paper: Consumer Information and the Limits to Competition (2021)
Working Paper: Consumer Information and the Limits to Competition (2019)
Working Paper: Consumer information and the limits to competition (2019)
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