Persuasion produces the (diamond) paradox
M Whitmeyer - arXiv preprint arXiv:2011.13900, 2020 - arxiv.org
arXiv preprint arXiv:2011.13900, 2020•arxiv.org
This paper extends the sequential search model of Wolinsky (1986) by allowing firms to
choose how much match value information to disclose to visiting consumers. This restores
the Diamond paradox (Diamond 1971): there exist no symmetric equilibria in which
consumers engage in active search, so consumers obtain zero surplus and firms obtain
monopoly profits. Modifying the scenario to one in which prices are advertised, we discover
that the no-active-search result persists, although the resulting symmetric equilibria are ones …
choose how much match value information to disclose to visiting consumers. This restores
the Diamond paradox (Diamond 1971): there exist no symmetric equilibria in which
consumers engage in active search, so consumers obtain zero surplus and firms obtain
monopoly profits. Modifying the scenario to one in which prices are advertised, we discover
that the no-active-search result persists, although the resulting symmetric equilibria are ones …
This paper extends the sequential search model of Wolinsky (1986) by allowing firms to choose how much match value information to disclose to visiting consumers. This restores the Diamond paradox (Diamond 1971): there exist no symmetric equilibria in which consumers engage in active search, so consumers obtain zero surplus and firms obtain monopoly profits. Modifying the scenario to one in which prices are advertised, we discover that the no-active-search result persists, although the resulting symmetric equilibria are ones in which firms price at marginal cost.
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