Consumer Search and Choice Overload (Thursday 12:30)

Category: Applied Microeconomics and Organization Seminar , Management & Microeconomics Brown Bag Seminar
When: 05 May 2022
, 12:30
 - 13:30
Where: RuW 4.201

Abstract:  We study a model in which a monopoly seller decides which among a set of heterogeneous products to offer, and what prices to charge, and consumers engage in costly (random) sequential search to learn prices and valuations. We show that the equilibrium exhibits choice overload: The larger the product line, the fewer consumers start searching. We provide conditions under which the equilibrium size of the product line is socially excessive (or insufficient). We also characterize equilibria when the seller can position products, thereby allowing the possibility of directed search, and disclose product identity. We show that the best equilibrium for the seller may involve randomizing over product positioning and inducing inefficient search. Finally, we extend our analysis to that of a platform choosing which sellers to host.