Working Paper: CEPR ID: DP16440
Authors: Volker Nocke; Patrick Rey
Abstract: We consider a multiproduct seller facing consumers who must search to learnprices and valuations. The equilibrium features choice overload: the largerthe product line, the fewer consumers start searching. We provide conditionsunder which the seller offers too much or too little variety. We then allowthe seller to position products or make recommendations, thereby introducingthe possibility of directed search, and show that the seller may find itprofitable to maintain some noise. Finally, we study the seller's incentiveto disclose product identity and extend our analysis to that of a platformchoosing which sellers to host.
Keywords: sequential consumer search; product variety; choice overload; multiproduct firm; platform
JEL Codes: L12; L15; D42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in product variety (L15) | choice overload (D71) |
| choice overload (D71) | fewer consumers initiating searches (D19) |
| increase in product variety (L15) | lower probability of finding a match during searches (C78) |
| optimal size of product line (L25) | decreasing in the elasticity of the search cost distribution (D39) |
| optimal size of product line (L25) | increases or decreases with consumers' share of surplus (D11) |
| product positioning and disclosure (G18) | impact on consumer search behavior (F61) |
| directed search (C91) | enhances efficiency (D61) |
| directed search (C91) | may not always align with seller's profit-maximizing strategies (L21) |