Attraction versus Persuasion: Information Provision in Search Markets
For economists studying market design and information disclosure, this provides a theoretical framework showing when firms voluntarily provide efficient information.
This paper models how competing firms choose to disclose product information in a search market, finding that equilibrium information provision is either first-best (full information) or involves randomized signals depending on product quality and competition intensity.
We consider a model of oligopolistic competition in a market with search frictions, in which competing firms with products of unknown quality advertise how much information a consumer's visit will glean. In the unique symmetric equilibrium of this game, the countervailing incentives of attraction and persuasion yield a payoff function for each firm that is linear in the firm's realized effective value. If the expected quality of the products is sufficiently high (or competition is sufficiently fierce), this corresponds to full information--firms provide the first-best level of information. If not, this corresponds to information dispersion--firms randomize over signals.