Information Gathering and Marketing

Abstract

Consumers have only partial knowledge before making a purchase decision, but can choose to acquire more detailed information. A firm can make it easier or harder for these consumers to obtain such information. We explore consumers' information gathering and the firm's integrated strategy for marketing, pricing, and investment in quality. In particular, we highlight that when consumers are ex-ante heterogeneous, the firm might choose an intermediate marketing strategy for two quite different reasons. First, it serves as a non-price means of discrimination - it can make information only partially available, in a way that induces some, but not all, consumers to acquire the information. Second, when the firm cannot commit to a given investment in quality, it can still convince all consumers of its provision by designing a pricing and marketing policy that induces some consumers to actively gather further information. This mass of consumers, in exchange, is sufficiently large to discipline the monopolist to invest in the quality of the product.