Olivia Natan is an Assistant Professor of
Marketing at Haas School of Business. She is also a faculty affiliate at the
Berkeley Institute for Data Science. Her research interests are limited
information, product variety, product assortments, consumer search, behavioral
IO.
Paper: https://www.dropbox.com/s/yevrvqdptcr13h6/Choice_Frictions.pdf?dl=0
Abstract: This paper studies how the growth and evolution of product assortments impact consumer adoption, churn, and purchase frequency. Most economic theories of product variety and the value of platforms suggest consumers at least weakly prefer larger product assortments. In contrast, the psychological literature on the phenomenon of choice overload finds that larger assortments overwhelm consumers with decision costs or induce more regret. I provide empirical evidence of how the size and contents of product assortments impact consumers across their lifetime on an online food delivery platform. I find that assortment expansion increases the acquisition of new consumers but reduces the frequency of consumption among consumers who remain on the platform. I rationalize these effects via a model of costly attention and choice under limited information. Counterfactual exercises show that targeting choice set reductions can improve revenue among existing customers.
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