Guiding Consumers through Lemons and Peaches: An Analysis of the Eﬀects of Search Design Activities
50 Pages Posted: 18 May 2018 Last revised: 14 Jan 2020
Date Written: January 10, 2020
The advent of the Internet age has led to questions about the impact of obfuscation and information provision activities by sellers. We estimate the welfare eﬀects of search design activities by an online used car seller, through a dynamic model of search over diﬀerentiated oﬀerings. We ﬁnd that diﬀerent emphases on product characteristics have a modest impact on consumer welfare (-0.4% to +2.5%) but a relatively high impact on the seller’s (-1.9% to +11.3%). Incentives for information provision are found to be largely aligned between supply and demand. Finally, we ﬁnd no evidence of consumer myopia in learning.
Keywords: consumer search, information design, correlated attributes, knowledge gradient
JEL Classification: D12, D82, D83
Suggested Citation: Suggested Citation