Consumer search and optimal information

This paper studies an information design problem in a sequential consumer search environment. Consumers, whose valuation of firm's products is uncertain, observe a noisy signal about the valuation upon being matched with a firm. The goal is to characterize those signal structures that maximize consumer surplus. The paper shows that the consumer-optimal signal structure can be found within the class of conditional unit-elastic demand signal structures. We also provide a rich set of comparative statics of the optimal signal structure with respect to the search cost. For a binary value distribution, the unique optimal conditional unit-elastic demand signal structure is also the unique optimal signal structure. Most remarkably, the informativeness of the optimal signal structure in this case is piecewisely monotone with respect to the search cost.