Optimal Search for Product Information
31 Pages Posted: 8 Dec 2010 Last revised: 14 Dec 2010
Date Written: August 27, 2010
Abstract
Consumers often need to search for product information before making purchase decisions. We consider a parsimonious model in which consumers incur search costs to learn further product information, and update their expected utility of the product at each search occasion. We characterize the optimal stopping rules to either purchase, or not purchase, as a function of search costs and the informativeness of each attribute. The paper also characterizes how the likelihood of purchase changes with the ex-ante expected utility, search costs, and informativeness of each attribute. We discuss optimal pricing, the impact of consumer search on profits and social welfare, and how the seller chooses its price to strategically affect the extent of the consumers’ search behavior. The paper also considers the impact of searching for signals of the value of the product, of discounting, and of endogenizing the intensity of search.
Keywords: search, product information
JEL Classification: D83, L15
Suggested Citation: Suggested Citation
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