Consumer Information and the Limits to Competition

This paper studies the effects of providing product information to consumers (e.g., by platforms) on markets featuring price competition. Providing more information helps the consumer find products that better match the consumer’s tastes, but it also limits competition by advantaging firms selling the consumer’s preferred products. The authors find that providing coarse information (e.g., informing consumers of their most preferred product but nothing else) can be optimal for firm profit, and that the optimal level of information for consumers must lead some consumers to purchase products other than their preferred ones.