The Power of Commitment in Group Search

Abstract

In this paper, we build a two-member two-period model to show that when a group of people with different preferences conduct search and make a decision together, they can benefit from making a commitment on the number of products to search \emph{ex ante} when the search cost is very small or relatively large. The underlying mechanism is that, because of the preference inconsistency between group members, they tend to search fewer products and thus have lower expected utility in group search than in single-agent search, and making a commitment on the number of products to search helps mitigate the preference inconsistency problem in group search, especially when the search cost is very small or relatively large. If consumers can observe product prices before search and the firm sets product prices endogenously, the firm can benefit from letting consumers commit on the number of products to search \emph{ex ante} if consumers search as a group and their search cost is small. We also consider several extensions to show the robustness and boundary conditions of our findings.

Keywords: Search, Group Decision, Preference Inconsistency, Commitment