Consumer Search, Steering and Choice Overload

Abstract

We develop a model of within-firm sequential, directed search and study a firm’s ability and incentive to steer consumers. We find that the firm often benefits from adopting a noisy positioning strategy, which limits the information available to consumers. This induces consumers to keep searching but discourages some of them from visiting the firm. This occurs even though the firm and the consumers have in common the interest of maximizing the probability of trade. Because of such noisy positioning, an increase in the size of the product line further discourages consumers from visiting the firm—consistent with choice overload.

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Reference

Volker Nocke, and Patrick Rey, “Consumer Search, Steering and Choice Overload”, Journal of Political Economy, vol. 132, n. 5, May 2024, pp. 1684–1739.