Working Paper: CEPR ID: DP17165
Authors: Jakub Steiner; Colin Stewart; Pavel Kocourek
Abstract: A growing body of evidence suggests that consumers are not fully informed about prices, contrary to a critical assumption of classical consumer theory. We analyze a model in which consumer types can vary in both their preferences and their information about prices. Given data on demand and the distribution of prices, we identify the set of possible values of the consumer surplus. Each surplus in this set can be rationalized with simple information structures and preferences. We also show how to narrow down the set of values using richer datasets and provide bounds on counterfactual demands at perfectly observed prices.
Keywords: consumer surplus; price uncertainty; information design
JEL Codes: D11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Uncertainty about prices (D89) | Range of potential consumer surplus values (D11) |
| Rich datasets (Y10) | Tighter bounds on consumer surplus (D11) |
| Probability that consumer's value exceeds price (D11) | Demand at a given price (D41) |
| Stochastic value associated with upper threshold model (C69) | Highest consumer surplus (D11) |