The Dual Effects of Third-party Information on Market Competition

Abstract

This paper considers the impact of third-party information in a market where consumers do not have perfect observations of product attributes. The information has dual effects on consumers: 1) it makes consumers better informed of product attributes; and 2) it makes consumers more confident of their information about product attributes. We show that while both effects increase overall consumer willingness-to-pay, they have opposite impacts on market competition for certain categories of products. Our results indicate the necessity to distinguish the two effects in academic research and business practices.