How Do Informed and Uninformed Customers Come into Being in Varian's Model of Sales?

Abstract

his paper endogenizes the numbers of informed and uninformed customers in Varian’s Model of Sales. Following [2], this paper establishes a simultaneous move pricing game, in which all consumers are assumed to be ex ant uninformed. Post ant informed and uninformed customers are the result of strategic interactions between sellers and buyers. This paper derives all possible symmetric equilibria of the pricing game. A representative firm makes negative, zero or positive expected profit depending on the realized consumer decision rules.