Preprints of the Max Planck Institute for Research on Collective Goods 2017/21
Online platforms provide search tools that help consumers to get betterfitting product offers. But this technology makes consumer search behavior also easily traceable for the platform and allows for real-time price discrimination. Consumers face a trade-off: Search intensely and receive better fits at potentially higher prices or restrict search behavior - be strategically inattentive - and receive a worse fit, but maybe a better deal. We study the strategic buyer-seller interaction in such a situation theoretically as well as experimentally. The search technology we use in the laboratory leads by construction to better-fitting products, but we indeed find that only sellers profit from the buyers' use of the offered search tools.
strategic inattention price discrimination information transmission consumer choice experiment