Consumer Information and the Limits to Competition

This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class structures that induce pure-strategy pricing equilibria, we derive are optimal for and those consumers. The firm-optimal policy amplifies underlying product differentiation, thereby relaxing competition, while ensuring purchase preferred product, maximizing total welfare. consumer-optimal dampens which intensifies but induces some to buy less product. Our analysis sheds light on limits information possessed by can be designed flexibly. (JEL D11, D21, D43, D82, D83, L13)