Attraction versus Persuasion: Information Provision in Search Markets

We consider a model of oligopolistic competition in a market with search frictions, in which competing rms with products of unknown quality advertise how much information a consumer’s visit will glean. In the unique symmetric equilibrium of this game, the countervailing incentives of attraction and persuasion yield a payo function for each rm that is linear in the rm’s realized e ective value. If the expected quality of the products is su ciently high (or competition is su ciently erce), this corresponds to full information–search frictions beget the rst-best level of information provision. If not, this corresponds to information dispersion– rms randomize over signals. If the attraction incentive is absent (due to hidden information or costless search), rms reveal less information and information dispersion does not arise. ∗We thank Emir Kamenica and ve anonymous referees for many excellent comments. We are also grateful to V. Bhaskar, Laura Doval, Ayça Kaya, Willie Fuchs, Vasudha Jain, Elliot Lipnowski, Larry Samuelson, Vasiliki Skreta, Isaac Sonin, Dale Stahl, Max Stinchcombe, Joseph Whitmeyer, Thomas Wiseman, Kun Zhang, and various conference and seminar participants for their invaluable feedback. The excellent research assistance by Ke-cheng Hsu and Weixuan Zhou is gratefully acknowledged. This paper combines and subsumes the papers “Competition in Designing Pandora’s Boxes,” by the rst author; and “Persuading a Consumer to Visit,” by the second author. A signi cant portion of the latter previously appeared under di erent names, “Persuading Perceval" and “Information Provision in a Sequential Search Setting," and was the third chapter of the second author’s dissertation at UT Austin. Part of this work was completed while the second author was at the Hausdor Center for Mathematics and the Institute for Microeconomics at the University of Bonn, where he was supported by the DFG under Germany’s Excellence Strategy-GZ 2047/1, Projekt-ID 390685813. †Department of Economics, Hong Kong University of Science and Technology Email: aupakhung@ust.hk. ‡Department of Economics, Arizona State University Email: mark.whitmeyer@gmail.com. 1 ar X iv :1 80 2. 09 39 6v 6 [ m at h. PR ] 1 7 Fe b 20 22