Consumer Search with Limited Product Evaluation
Forthcoming in the Journal of Economics & Management Strategy
40 Pages Posted: 10 Sep 2015
Date Written: August 31, 2015
Consumers need not evaluate all available product information before making a purchase. This may arise because shopping environments prevent a full evaluation (e.g. online). We develop a model of simultaneous search in which consumers have limited ability in product evaluation in order to study the impact of search cost on prices, consumer surplus, and social welfare. If consumers are endowed with the ability to choose how much information to acquire from a searched product, they may choose limited product evaluation. We find that consumers may evaluate more firms, enjoy lower prices and higher surplus despite this limited ability. This implies that prices can decrease and consumer surplus can increase in search costs. We then extend our setting to the case of multi-product firms and find similar effects due to changes in within-firm search costs.
Keywords: Consumer Search, Simultaneous Search, Limited Evaluation
JEL Classification: D43, D83, L13
Suggested Citation: Suggested Citation