Faculty Digital Archive

Archive@NYU >
Stern School of Business >
Economics Working Papers >

Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/26049

Title: Information Gathering Externalities in Product Markets
Authors: Bar-Isaac, Heski
Caruana, Guillermo
Cunat, Vicente
Issue Date: May-2007
Series/Report no.: EC-07-19
Abstract: Goods and services vary along a number of dimensions independently. Customers can choose to acquire information to assess the quality of some dimensions and not others. Their choices affect firms’ incentives to invest in quality and so lead to indirect externalities in consumers’ choices. We illustrate these ideas in a simple model with a monopolist selling a product with two characteristics, investment in quality with stochastic realizations, and heterogeneous consumers. Consumers in choosing which information to acquire do not consider the effects on firm investment incentives and so there are indirect externalities in information gathering. Therefore, a fall in the cost of acquiring information, by changing the pattern of consumers’ information gathering and thereby firm investment, can paradoxically reduce consumer surplus, profits, and welfare. We briefly consider a number of potential extensions and in particular, highlight a benefit of diversity in tastes.
URI: http://hdl.handle.net/2451/26049
Appears in Collections:Economics Working Papers

Files in This Item:

File Description SizeFormat
7-19.pdf312.4 kBAdobe PDFView/Open

Items in Faculty Digital Archive are protected by copyright, with all rights reserved, unless otherwise indicated.

 

The contents of the FDA may be subject to copyright, be offered under a Creative Commons license, or be in the public domain.
Please check items for rights statements. For information about NYU’s copyright policy, see http://www.nyu.edu/footer/copyright-and-fair-use.html 
Valid XHTML 1.0 | CSS