Preview Provision Under Competition

Abstract

In certain categories, an important element of competition is the use of previews to signal information to potential consumers about product attributes. For example, the front page of a newspaper provides a preview to potential newspaper buyers before they purchase the product. In this context, a news provider can provide previews that are highly informative about the content of the news product. Conversely, a news provider can utilize a preview that is relatively uninformative. We examine the incentives that firms have to adopt different preview strategies in a context where they do not have complete control of product positioning. Our analysis shows that preview strategy can be a useful source of differentiation. However, when a firm adopts a strategy of providing informative previews, it confers a positive externality on a competitor that utilizes uninformative previews. This reinforces the incentive of the competitor to use uninformative previews and explains why the market landscape in news provision is often characterized by asymmetric competition.