Consumer Information

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Consumer Information
2
Lack of Information

• Why should we be concerned by a lack of
  information search?

3
Uhl Model
Human Capital
Consumer Welfare
Competition / Voluntary Seller's Activities
Legislation and Regulation
Adopted from Uhl, J. (1971). Consumer
Education and protection A synergistic
relationship.
4
What is Information?
5
Economic implications of lack of adequate
information
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Consumer Surplus

• To understand economic implications of lack of
  adequate information we must first understand
  concept of consumer surplus
• Consumer Surplus is the difference between what a
  consumer is willing to pay and what the consumer
  has to pay, added across all consumers, OR
• Consumer Surplus is the area above the Market
  Price and below the Demand Curve
• Consumer Surplus is a measure of the benefits
  buyers received from participating in a market

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Consumer Surplus
If market exist then, Market Price 50.00 Buyer
Willingness Surplus Total
Surplus to Pay A 100 50 50
B 80 30 80 C 60 10 90
D 50 0 90
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Consumer Surplus
P
ACPm consumer surplus
A
C
Pm
S
D
Q
9
Economic implications of lack of adequate
information
P
A B C
A
B
Pe
S
C
D perceived
D actual
Q actual
Q perceived
Q
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Economic implications of lack of adequate
information
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Stiglers economics of information model

• Assumptions

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Price Dispersion

• Differences in seller cost
• Market instability

13
Ignorance

• Stiglers definition of ignorance
• High cost of ignorance
• High cost of information

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The Information Problem

• Two elements
• price
• quality

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Price - or Full Price

• What is meant by full price?

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Full Price

• P Pt Pi Pd Po
• Where
• Pt tag or purchase price
• Pi the price of information
• Pd the expected potential damage cost
  associated with using the product over its
  lifetime
• Po the expected cost of operating and
  maintaining the product over its lifetime

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Full Price - Price of information

• Four types of search costs

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Full Price - Safety

• Damage cost associated with use of product
• Expected loss

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Full Price - Depreciation, Operating, and
Maintenance

• What does depreciation, operating, and
  maintenance show us with regard to full price?
• How to calculate?

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Quality Problem

• Awareness of needs
• Awareness of products
• Extent to which a brand/model meets ones needs

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Efficient consumer choice
Cy/p
A
C1
U3
B
U2
C
U1
Cx/p
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Informational properties of goods

• Experience Good
• Credence Good
• Search Good
• How does the advertising for search goods differ
  from that of experience or credence goods?

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Stigler Search for optimal quantity of
information

• How do we determine the optimal quantity of
  information for which to search?

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Costs and Benefits of Information Search
Lowest Savings Shopping Extra costs tire
price by shopping costs by shopping (4
tires) one more store one more store Store
1 400 5 Store 2 360 40
8 3 Store 3 350 10 12
4 Store 4 349 1
15 3
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Search

• Research findings on search for information
  include

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Factors affecting extent of search
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Factors limiting search
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Ignorance of need for search

• What are consequences?
• What are research findings?

I
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Information Processing Costs
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Strategies Used to Process Information

• Readily available vivid
• Form in which it is displayed
• Previous experience
• Small sample size
• Small probability event
• Small number of alternatives

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Strategies Used to Process Information

• Rules rather than information
• Price is an indictor of quality
• Once excellent, always excellent (brand name)
• Always buy from the same excellent firm
• Buy top of line

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Information and Technology
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Information and Technology

• Selling by telephone
• telemarketing
• Television shopping
• Internet

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New Forms of Information OR Access to Information

• Given the research results that have been
  presented, would you predict that we would
  continue to see the same empirical results for
  the new forms of information available for
  consumers or new access to information?
• Do you think the new forms of information or
  access to information will mean that consumers
  will make better decisions?
• What do you think the new forms of information or
  access to information will have on the
  marketplace?

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Infomediary Firms and Services

• Consumer feedback sites Smart-search sites
  (MySimon)
• How-to-sites
• Consumer review and opinion sites
• Buying clubs
• Smart-rating sites

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Information and Privacy

• High Privacy worries

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Privacy Goodwin

• Two dimension of control that can help define
  consumer privacy

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Goodwins Taxonomy