Economics Seminar（2019-07）

Topic: Information Structure and Price Competition (joint with Mark Armstrong)

Speaker: Jidong Zhou,Yale School of Management

Time: Tuesday,28^thMay, 13:30-15:00

Location: Room 217, Guanghua Building 2

Abstract:

This paper studies how product information possessed by consumers (e.g. from product reviews, platform recommendations, etc.) affects competition between firms. We consider symmetric firms which supply differentiated products and compete in prices. Before purchase, consumers observe a private signal of their valuations for various products. For example, the signal might reveal their valuations perfectly or not at all, or only inform them of the ranking of products. We consider a fairly general class of signal structures which induce a symmetric pure-strategy pricing equilibrium, and derive for the signal structure within this class which is optimal for firm or for consumers. The key trade-off is that with more detailed product information consumers are more able to buy their preferred products, but at the same time firms have more market power and charge higher prices. The firm-optimal signal structure induces consumers to view the products as being sufficiently differentiated, while the consumer-optimal information structure induces choosy consumers to buy their preferred product but pools other consumers by providing little information to them in order to intensify price competition. The firm-optimal information structure often does not cause mismatch between consumers and products and so maximizes total welfare, while the consumer-optimal information structure often causes mismatch and does not maximize total welfare. We also derive an upper bound for consumer surplus across all symmetric information structures, which shows that allowing for mixed-strategy pricing equilibria could increase consumer surplus only slightly.

Introduction:

Jidong Zhou is an assistant professor of economics at Yale School of Management. His research fields include applied microeconomic theory, industrial organization, and behavioral economics. His research mainly examines how imperfect information and imperfect consumer abilities hinder market competition and harm market efficiency, and their implications for antitrust and consumer-protection policies. He has published his research in journals like American Economic Review, Econometrica, RAND Journal of Economics, and Review of Economic Studies. He serves as an associate editor for several journals including RAND Journal of Economics. Jidong Zhou received a B.A. in Management and Economics and an M.A. in Economics from Guanghua School of Management in Peking University, and a Ph.D. in Economics from University College London.

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