Strategic Inattention in Product Search

Rapid technological developments in online markets fundamentally change the relationship between consumers and sellers. Online platforms can easily gather data about consumers’ search behavior, allowing for price discrimination. Therefore, product search becomes a strategic choice. Consumers face a tradeoff: Search intensely and receive a better fit at a potentially higher price or restrict search behavior, be strategically inattentive, and receive a worse fit but maybe a better deal. We study the resulting strategic buyer-seller interaction theoretically and experimentally. Our experimental results shed a critical light on the added value for consumers through the rise of online platforms and on the effectiveness of current regulations. This paper was accepted by Elena Katok, Special Issue on the Human-Algorithm Connection. Funding: This work was supported by the ZEW–Leibniz-Zentrum für Europäische Wirtschaftsforschung, and the Max-Planck-Gesellschaft. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.03413 .