Optimal Search for Product Information

31 Pages Posted: 8 Dec 2010 Last revised: 14 Dec 2010

See all articles by Fernando Branco

Fernando Branco

Universidade Catolica Portuguesa

Monic Sun

Questrom School of Business, Boston University

J. Miguel Villas-Boas

University of California, Berkeley

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

Branco, Fernando and Sun, Monic and Villas-Boas, J. Miguel, Optimal Search for Product Information (August 27, 2010). Available at SSRN: https://ssrn.com/abstract=1720122 or http://dx.doi.org/10.2139/ssrn.1720122

Fernando Branco

Universidade Catolica Portuguesa ( email )

FCEE
Palma de Cima FCEE
1649-023 Lisboa
Portugal
351-1-721-4241 (Phone)
351-1-727-0252 (Fax)

Monic Sun (Contact Author)

Questrom School of Business, Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 353 9640 (Phone)

HOME PAGE: http://people.bu.edu/monic

J. Miguel Villas-Boas

University of California, Berkeley ( email )

Haas School of Business
Berkeley, CA 94720
United States
510-642-1250 (Phone)
510-643-1420 (Fax)

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