The Dual Effects of Third-party Information on Market Competition

Abstract:     
This paper considers the impact of third-party information in a market where consumers do not have perfect observations of product attributes. The information has dual effects on consumers: 1) it makes consumers better informed of product attributes; and 2) it makes consumers more confident of their information about product attributes. We show that while both effects increase overall consumer willingness-to-pay, they have opposite impacts on market competition for certain categories of products. Our results indicate the necessity to distinguish the two effects in academic research and business practices.

Number of Pages in PDF File: 31

Keywords: Product differentiation, product information, duopoly competition

JEL Classification: D43, M31

working papers series