Uncertain Product Availability in Search Markets

TL;DR

This paper develops a theoretical model to analyze how information asymmetry about product availability affects consumer search behavior and market competition, revealing that increased availability can paradoxically reduce consumer welfare.

Contribution

It introduces a novel model incorporating product availability information asymmetry into search markets, highlighting its impact on consumer search incentives and competition.

Findings

Greater product availability can reduce consumer search effort.

Information asymmetry about availability may soften market competition.

Consumers may be worse off with increased product availability.

Abstract

In many markets buyers are poorly informed about which firms sell the product (product availability) and prices, and therefore have to spend time to obtain this information. In contrast, sellers typically have a better idea about which rivals offer the product. Information asymmetry between buyers and sellers on product availability, rather than just prices, has not been scrutinized in the literature on consumer search. We propose a theoretical model that incorporates this kind of information asymmetry into a simultaneous search model. Our key finding is that greater product availability may harm buyers by mitigating their willingness to search and, thus, softening competition.