Informational Complementarity
Name
SSRN-id3212869.pdf
Description
Accepted version
Size
1.06 MB
Format
Adobe PDF
Checksum (MD5)
05996dd0a161a2abe198f15902ea756f
Author(s)
Ke, T. Tony
Lin, Song
Date Issued
December 2019
Journal
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Citation
Ke, T. Tony and Song Lin. “Informational Complementarity.” Management Science 66, 8 (August 2020): 3699-3716 © 2019 The Author(s)
Version
Author's final manuscript
Abstract
Many products have similar or common attributes and are thus correlated. We show that, when these attributes are uncertain for consumers, a complementarity effect can arise among competing products in the sense that the lower price of one product may increase the demands for the others. This effect occurs when consumers sequentially search for information about both common and idiosyncratic product attributes before purchase. We characterize the optimal search strategy for the correlated search problem, provide the conditions for the existence of the complementarity effect, and show that the effect is robust under a wide range of alternative assumptions. We further explore the implications of the effect for pricing. When firms compete in price, although product correlation may weaken differentiation between the firms, the complementarity effect owing to correlated search may raise equilibrium price and profit.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
10.1287/MNSC.2019.3377
