Information Acquisition and Product Differentiation Perception

Biglaiser, Gary; Gu, Jiadong; Li, Fei

doi:10.1257/mic.20230104

Abstract

We consider the equilibrium interplay between sellers鈥� price competition and consumers鈥� perception of product differentiation. We analyze a situation where, before trading, consumers acquire information at a cost about their preferences between sellers鈥� differentiated products. The incentive for information acquisition depends on the average value of products, the objective product differentiation, and their beliefs about sellers鈥� prices. The acquired information shapes consumers鈥� perceived product differentiation and sellers鈥� equilibrium prices. We characterize the unique symmetric equilibrium and study comparative statics with respect to consumer information acquisition cost and sensitivity to product differentiation.

蝌蚪网

蝌蚪网 Journal:
Microeconomics