DP16440 Consumer Search and Choice Overload

Author(s): Volker Nocke, Patrick Rey
Publication Date: August 2021
Keyword(s): choice overload, multiproduct firm, Platform, product variety, sequential consumer search
JEL(s): D42, L12, L15
Programme Areas: Industrial Organization, Organizational Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16440

We consider a multiproduct seller facing consumers who must search to learn prices and valuations. The equilibrium features choice overload: the larger the product line, the fewer consumers start searching. We provide conditions under which the seller offers too much or too little variety. We then allow the seller to position products or make recommendations, thereby introducing the possibility of directed search, and show that the seller may find it profitable to maintain some noise. Finally, we study the seller's incentive to disclose product identity and extend our analysis to that of a platform choosing which sellers to host.