Consumer Information and the Limits to Competition

Mark Armstrong and Jidong Zhou ()

No 2269, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class of signal structures which induce pure-strategy pricing equilibria, we derive signal structures which are optimal for firms and those which are optimal for consumers. The firm-optimal policy amplifies underlying product differentiation, thereby relaxing competition, while ensuring consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal policy dampens differentiation, which intensifies competition, but induces some consumers to buy their less-preferred product. Our analysis sheds light on the limits to competition when the information possessed by consumers can be designed flexibly.

Keywords: Information design; Bertrand competition; Product differentiation; Online platforms (search for similar items in EconPapers)
JEL-codes: D43 D83 L13 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2021-01
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-mic
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Related works:
Journal Article: Consumer Information and the Limits to Competition (2022)
Working Paper: Consumer Information and the Limits to Competition (2021)
Working Paper: Consumer information and the limits to competition (2019)
Working Paper: Consumer Information and the Limits to Competition (2019)
Working Paper: Consumer information and the limits to competition (2019)
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