Consumer Search and Choice Overload

Résumé

In this paper, we develop a model of within-firm sequential, directed search and study a firm’s ability and incentive to steer consumers. The paper’s main insight is that the firm often benefits from garbling the information it provides to consumers. This induces consumers to keep searching but discourages some of them from visiting the firm—a form of garbling overload. The incentive to garble the information arises even though the firm and the consumers have in common the interest of maximizing the probability of trade—in particular, the setting abstracts from any self-preferencing or bias in favor of particular products. Because of information garbling, an increase in the size of the product line further discourages consumers from visiting the firm—consistent with choice overload.