Competition, Information and Consumer Surplus

Abstract

Customer services made at the retail level are extremely important for enhancing the demand for the brands and products. The retailers, however, often consider price as the most important parameter of competition because the existence of price comparison tools makes the price information more transparent. We compare three situations where consumers learn (i) no information, (ii) only price information, (iii) price and service quality information before they search for an ideal retailer. We find that only providing price information not always gives a higher consumer surplus and social welfare than providing no information, but providing both price and service quality information always gives the highest consumer surplus and social welfare among the three situations.