Consumer obfuscation by a multiproduct firm

Abstract

also analyzes obfuscation and the price choices of a multiproduct monopolist with horizontally differentiated products. Unlike the present article, he places fewer restrictions on the distributions of match values and focuses on markets with more than two products and observable prices. For these reasons, some of his results and welfare findings differ from the present article, including showing that obfuscation might improve welfare.By obfuscating some of its products, the monopolist controls the order in which its goods are sampled. In this sense, the present article is related to the literature on ordered searching. Arbatskaya (2007) shows that when consumers shop for homogeneous products, equilibrium prices must fall as a consumer proceeds to search for lower prices. Zhou (2011) demonstrates that when consumers shop for differentiated products, equilibrium prices increase instead. Armstrong, Vickers, and Zhou (2009) explore the role of prominence in search markets and show that a prominent product is sold at a lower price relative to nonprominent products. The main difference between those articles and the present one is that this study focuses on the role of search frictions among the products provided by a single firm. Zhou (2009) also observes that a multiproduct monopolist earns higher profits if one of its products is prominent. My monopoly analysis extends his result by allowing the monopolist to choose the degree of obfuscation, and by treating differences in product quality and design. 3 The decision of a firm to obfuscate its products is somewhat related to its decision to advertise its products. Therefore, in this sense, the present article is related to the work of Caminal (1996), Anderson and Renault (2006), and Wang (2017). In all three models, the decision to advertise affects consumers' decisions on whether to pay a costly visit to a firm, and the firm chooses the advertising option that leads to the highest possible consumer traffic. The major difference between those articles and the present one is that in those articles, a single-product advertising monopolist often earns less if fewer consumers search, whereas in the present article, the multiproduct monopolist gains from consumers who decide not to search much, in that they buy products that are more expensive, though less obfuscated. Janssen and Non (2009) show that there may be an equilibrium in a duopoly model with homogeneous products, in which advertising firms charge higher prices. Their result stems from the fact that consumers differ in their willingness to pay that is positively correlated with their search costs. In contrast in the present article, there is no search cost differentiation across consumers.By the fact that the mean valuation of a product by consumers who acquire the good decreases in the search order, my results resemble the findings of models with an intertemporal pricediscriminating monopolist (see, e.g., Coase, 1972;Stokey, 1979Stokey, , 1981Bulow, 1982). However, unlike with that monopolist, its multiproduct ...

The Impact of Increasing Search Frictions on Online Shopping Behavior: Evidence from a Field Experiment

“…Our customer utility and search model within this framework follows recent work in the search literature that examines obfuscation in settings with monopolistic competition (e.g., Armstrong 2017; Gamp 2019; Petrikaitė 2018). We consider a representative consumer who earns utility u j from buying product j, which equals the difference between her match value ϵ j and the price p j of the product, given price sensitivity α ∈ [ 0 , 1 ] : u j = ϵ j − αp j .…”

Search Cost and Obfuscation Equilibrium: An Empirical Investigation

“…The remaining proportion of consumers have a common search cost . The Bertrand(1883) [8] result and the Diamond(1971) [9] result obtain in the model when, and , respectively. When , there is no pure-strategy Nash Equilibrium(NE), but there is a unique symmetric NE in mixed strategies.…”

Prominent Retailer and Intrabrand Competition

“…Our research also connects to the broader consumer search literature (see, e.g., Anderson and Renault 1999;Diamond 1971;Dukes and Zhu 2019;Janssen, Moraga-Gonzalez, and Wildenbeest 2005;Janssen and Shelegia 2015;Jiang, Kumar, and Ratchford 2017;Ke and Lin 2020;Kuksov 2004;Lal and Sarvary 1999;McCall 1970;Stahl 1989;Stigler 1961;Weitzman 1979;Wolinsky 1986;Zhong 2020;Zhu and Dukes 2017;Zou and Jiang 2020). Within this large and diverse literature, our work is most closely informed by the ordered-search stream (e.g., Arbatskaya 2007;Armstrong, Vickers, and Zhou 2009;Armstrong and Zhou 2011;Astorne-Figaria and Yankelevich 2014;Cao and Zhu 2020;Choi, Dai, and Kim 2018;Janssen and Ke 2020;Mamadehussene 2019;Petrikaitė2018;Wilson 2010;Xu, Chen, and Whinston 2011). Here, instead of randomly sampling from the available options, customers search in a deliberate sequence, visiting certain firms early in the sequence, thus advantaging those firms.…”