Consumer information and the limits to competition
This paper studies competition between firms when consumers observe a pri-vate signal of their preferences over products. Within the class of signal structures which allow pure-strategy pricing equilibria, we derive signal structures which are optimal for firms and those which are optimal for consum...
| Main Authors: | , |
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| Format: | Working paper |
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University of Oxford
2019
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| _version_ | 1797097337864060928 |
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| author | Armstrong, M Zhou, J |
| author_facet | Armstrong, M Zhou, J |
| author_sort | Armstrong, M |
| collection | OXFORD |
| description | This paper studies competition between firms when consumers observe a pri-vate signal of their preferences over products. Within the class of signal structures which allow pure-strategy pricing equilibria, we derive signal structures which are optimal for firms and those which are optimal for consumers. The firm-optimal signal structure amplifies the underlying product differentiation, thereby relax¬ing competition, while ensuring that consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal structure dampens dif¬ferentiation, which intensifies competition, but induces some consumers with weak preferences between products to buy their less-preferred product. The analysis sheds light on the limits to competition when the information possessed by con¬sumers can be designed flexibly. |
| first_indexed | 2024-03-07T04:54:06Z |
| format | Working paper |
| id | oxford-uuid:d6000356-3067-418a-9485-dfb0f59c4673 |
| institution | University of Oxford |
| last_indexed | 2024-03-07T04:54:06Z |
| publishDate | 2019 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:d6000356-3067-418a-9485-dfb0f59c46732022-03-27T08:30:05ZConsumer information and the limits to competitionWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:d6000356-3067-418a-9485-dfb0f59c4673Bulk import via SwordSymplectic ElementsUniversity of Oxford2019Armstrong, MZhou, JThis paper studies competition between firms when consumers observe a pri-vate signal of their preferences over products. Within the class of signal structures which allow pure-strategy pricing equilibria, we derive signal structures which are optimal for firms and those which are optimal for consumers. The firm-optimal signal structure amplifies the underlying product differentiation, thereby relax¬ing competition, while ensuring that consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal structure dampens dif¬ferentiation, which intensifies competition, but induces some consumers with weak preferences between products to buy their less-preferred product. The analysis sheds light on the limits to competition when the information possessed by con¬sumers can be designed flexibly. |
| spellingShingle | Armstrong, M Zhou, J Consumer information and the limits to competition |
| title | Consumer information and the limits to competition |
| title_full | Consumer information and the limits to competition |
| title_fullStr | Consumer information and the limits to competition |
| title_full_unstemmed | Consumer information and the limits to competition |
| title_short | Consumer information and the limits to competition |
| title_sort | consumer information and the limits to competition |
| work_keys_str_mv | AT armstrongm consumerinformationandthelimitstocompetition AT zhouj consumerinformationandthelimitstocompetition |