Designing Information to Engage Customers

Collaborative customization is common in many markets. Sellers and customers can collectively discover the value of a product's basic design. Customers' willingness to pay can also be increased by being engaged to improve the product design. We study how a seller can design the information structure of collective learning about the product's basic value to induce costly customer engagement. We consider a setting in which the parties' expected payoffs are determined endogenously through the strategic interaction between seller pricing and customer engagement and purchase. The customer tends to be engaged in equilibrium, as the uncertainty on the product's basic value becomes higher to dilute the responsiveness of the optimal price to customer engagement. Therefore, the seller seeks to maximize the probability of generating an intermediate posterior belief. Thus, the optimal information design involves either exaggerating or downplaying the product's basic value, when the prior is low or high, respectively. We show that considering restrictive information structures can generate qualitatively different implications. We also examine how the (un)observability of engagement may influence the parties' strategic interaction, their expected payoffs, as well as the seller-optimal information design.