Advertising as a search deterrent

Abstract

This article examines a monopoly firm's incentive to disclose information through advertising when consumers can choose between buying immediately and searching for additional information. Because sales drop when search reveals low match values to consumers, the firm has an incentive to deter search. We show that partial information disclosure emerges as a useful tool for search deterrence when search costs are low. Informative advertising and consumer search can be viewed as complements in producing information. Although transparency policies reduce search expenditures and improve purchase decisions, whether they are socially desirable depends on the magnitude of search costs.

Shopping for Information: Implications of Consumer Learning for Optimal Pricing and Product Design*

“…My results indicate that in the presence of strategic consumers who can obtain information, this is not necessarily the case because the seller must take changes in consumer behavior into account. Wang [2017] adds a different kind of consumer information to a framework with dispersion. The firm controls the price and advertising, which is similar to dispersion.…”

“…Therefore, more informative advertising creates more dispersed expected values when consumers decide whether to search. Under an assumption on the demand curve, Wang [2017] finds that an interior level of informativeness is optimal if the cost of search is low enough. This result, however, relies on the consumers having heterogeneous values at the time of search.…”

“…Previous research (e.g., Johnson and Myatt [2006]; Bar-Isaac et al [2012]; Lewis and Sappington [1994]; Ivanov [2013]) finds that the seller's optimal level of dispersion is always either as much or as little as possible. Anderson and Renault [2006] and Wang [2017] add a different form of consumer search to a framework with price and dispersion choices and also find that dispersion need not be extreme. However, their results are driven by the fact that the seller uses costless signals to make consumers heterogeneous before they decide whether to search.…”

“…30 Heidhues et al [2021], Fishman and Lubensky [2017], and Wang [2017] also make a distinction between immediate sale and information acquisition. However, in Heidhues et al [2021], the seller posts two price components and searching can decrease the consumer's price, and in both Fishman and Lubensky [2017] and Wang [2017], the consumer becomes completely informed immediately upon search.…”

Commitment and cheap talk in search deterrence

“…A main objective of our article is to extend this discussion and to experimentally examine how credibility issues and cheap talk potentially affect the outcomes of search deterrence under their seminal framework. 2 Most other theoretical articles in this strand of literature focus on the strategic roles of acceptance deadline and information disclosure policy in deterring search, but do not consider credibility issues (Lippman and Mamer, 2012;Zorc and Tsetlin, 2020;Tang et al, 2009;Hu and Tang, 2021;Li and Zhao, 2022;Wang, 2017). 3 The experimental studies on search deterrence focus on exploding offers, without accounting for credibility issues (Tang et al, 2009;Lau et al, 2014).…”