Search, learning, and tracking

Abstract

AbstractIn many search markets, some consumers search to learn both the price and their willingness‐to‐pay whereas others search only to learn prices. When a seller can track indicators of the likelihood that consumers already know their willingness‐to‐pay, I show that price discrimination reduces profits and welfare relative to uniform pricing if search costs are small, but may increase both if search costs are large. The analysis also applies to sequential search if learning causes the likelihood that consumers know their willingness‐to‐pay to depend on the search history.