Managing Consumer Attention to Diverse Information Sources in Product Diffusion

Abstract

Consumers use both observational learning and direct information search before purchases, and choose among information sources with different leanings when searching for information. This paper develops a theoretical framework where consumers sequentially decide whether to search for information and which type of information source to search from, while observing purchase decisions from previous consumers. We characterize how firms can use dynamic pricing to influence consumer attention amid observational learning. Firms may optimally direct consumer attention toward negative-leaning sources even when positive-leaning sources are available, and doing so mitigates inefficient herding and improves aggregate learning. Our results remain robust when neutral information sources exist. Our study of consumer attention allocation amid observational learning provides insights into the strategic value of diverse information sources.

Keywords: observational learning, allocation of attention, consumer search, dynamic pricing, herding, information bias, product diffusion