Comparison Shopping: Learning Before Buying From Duopolists

Abstract

We explore a model of duopolistic competition in which consumers learn about the fit of each competitor's product. In equilibrium, consumers comparison shop: they learn only about the relative values of the products. When information is cheap, increasing the cost of information decreases consumer welfare; but when information is expensive, this relationship flips. As information frictions vanish, there is a limiting equilibrium that is ex post efficient.