Information Gathering and Marketing

Abstract

Consumers have only partial knowledge before making a purchase decision, but can choose to acquire more detailed information. A …rm can make it easier or harder for these consumers to obtain such information. We explore consumers'information gathering and the …rm's integrated strategy for marketing, pricing, and investment in quality. In particular, we highlight that when consumers are ex-ante heterogeneous, the …rm might choose an intermediate marketing strategy for two quite di¤erent reasons. First, it serves as a non-price means of discrimination-it can make information only partially available, in a way that induces some, but not all, consumers to acquire the information. Second, when the …rm cannot commit to a given investment in quality, it can still convince all consumers of its provision by designing a pricing and marketing policy that induces some consumers to actively gather further information. This mass of consumers, in exchange, is su¢ ciently large to discipline the monopolist to invest in the quality of the product.JEL: D42, D83, L15, M31

Search, Design, and Market Structure

“…This results in a long-tail e¤ect where niche products have higher sales. 7 Thus, in our model, lower search costs can explain both superstar and long-tail e¤ects, which can arise simultaneously (as shown empirically in Elberse and Oberholzer-Gee, 2006). 8 Moreover, the mechanisms and results do not rely on ex-ante …rm heterogeneity, in contrast to this previous literature: these e¤ects can arise even when all …rms and consumers are ex-ante identical.…”

Search, Design and Market Structure

“…A higher v i can be thought of as a better innate vertical quality, but it also can be interpreted as a lower marginal production cost. 9 Meanwhile, " li F i is a match value between consumer l and product i. It captures idiosyncratic consumer preferences for certain products over others.…”

Competition in the Presence of Individual Demand Uncertainty

“…For a description see http://tinet.ita.doc.gov/research/programs/ifs/description.html. 4 This is similar to the occurrence of customer poaching in markets with switching costs (Chen (1997),…”

“…This is because the firms' incentive to capture those consumers in advance, who might become their rival's customers in the future, leads to a large fraction of consumers being served at a discount. 4 We show that the overall effect on the Gini coefficient of price dispersion is positive if and only if the level of demand uncertainty is high or the degree of product differentiation is low. In contrast, when consumers differentiate strongly between products and are relatively certain about their preferred option, competition leads to a decrease in price dispersion.…”