Uncharted Waters: Selling a New Product Robustly

Abstract

New products often involve uncertainty about product fit, while sellers may also be unsure about what alternatives buyers face. I study a seller of a new product who sets a price and provides product-fit information before the buyer decides whether to search for an outside option. The buyer knows the outside-option distribution; the seller knows only its mean and bounds and maximizes guaranteed profit across compatible distributions. Information provision has two roles: it can hedge against uncertainty about the outside-option distribution and deter search by making buying without search attractive. Price governs their relative value: a higher price raises revenue per sale but makes search deterrence harder. The results help explain why new products differ in product-fit information and show that lower search costs can raise prices and make information noisier, challenging the presumption that easier search necessarily benefits consumers.