Title: Too much Information? Information Gathering and Search Costs
Abstract: A seller often needs to determine the amount of product information to provide to consumers. We model costly consumer information search in the presence of limited information. We derive the consumer's optimal stopping rule for the search process. We find that, in general, there is an intermediate amount of information that maximizes the likelihood of purchase. If too much information is provided, some of it is not as useful for the purchase decision, the average informativeness per search occasion is too low, and consumers end up choosing not to purchase the product. If too little information is provided, consumers may end up not having sufficient information to decide to purchase the product. The optimal amount of information increases with the consumer's ex-ante valuation of the product. One can also show that there is an intermediate amount of information that maximizes the consumer's expected utility from the search problem (social welfare under some assumptions). Furthermore, this amount may be smaller than that which maximizes the probability of purchase. That is, the market outcome may lead to information overload with respect to the social welfare optimum. The paper can be seen as providing a rationale for why too much information may hurt consumer decision-making.
Dr. Villas-Boas is the J.Gary Shansby Professor of Marketing Strategy and the Chair of the Marketing Group at the Hass School of Business, UC Berkeley. He has published extensively in competitive strategy, design of marketing organizations, distribution channels, customer relationship management, customer recognition, product line design, and industrial organization. His research has appeared in several journals, including Marketing Science, Management Science, Journal of Economic Theory, RAND Journal of Economics, Journal of Marketing Research, and Journal of Economics and Management Strategy.
His current research interests include competitive strategy, pricing in the digital economy, choice, information, and assortment decisions with evaluation costs, industry dynamics, and corporate social responsibility.
For more information about Miguel Villas-Boas, follow this link: http://groups.haas.berkeley.edu/marketing/profiles/profs/villas.html