Managing consumer search via information design

Abstract

In numerous markets, consumers need to incur search costs to gather information about products before making informed purchasing decisions. In response, firms can strategically influence consumer search behaviors to exploit consumer surplus and increase their profits, especially through advanced algorithms and available consumer data. This thesis aims to examine how firms employ information design to guide consumer search and purchase behaviors under various market structures. The first part of the thesis examines how firms manage consumer search and purchase behaviors in omnichannel operations via information design. By fine-tuning information structures, we can effectively guide consumer search, and coordinate channel competition. The optimal signal structure, which can be either a threshold (“two-interval”) policy or non-monotone (“three-interval”) policy, is driven by the complementarity between both channels, as well as the interplay between the persuasion incentive and the attraction incentive. In scenarios where product values are perfectly correlated, firms tend to employ a pooling strategy, obscuring extreme match values to prompt immediate online purchases, while presenting intermediate match values to encourage offline search and purchase among other consumers. The second part investigates how firms compete by jointly designing pricing strategies and information provision about the competitor. We identify the asymmetric equilibrium where information disclosure plays a pivotal role in facilitating implicit cooperation between competitive firms. Specifically, within this equilibrium, one firm attracts consumers to initiate their search by offering a lower price and utilizes information provision to prompt immediate purchases, thereby securing a larger share of the market. Concurrently, the other firm benefits from reduced uncertainty and strengthens its market power. The provision of competitor information eliminates price competition and allows both firms to achieve at least monopoly profits. Surprisingly, the prominence of consumer search does not confer a competitive advantage to one firm over its competitor; instead, it benefits the rival firm.

Date of Award	2024
Original language	English
Awarding Institution	The Hong Kong University of Science and Technology
Supervisor	Ying Ju CHEN (Supervisor) & Qiao-chu He (Supervisor)