Information Acquisition and Product Differentiation Perception

We consider the equilibrium interplay between sellers' price competition and consumers' perception of product differentiation. We analyze a situation where, before trading, consumers acquire information at a cost about their preferences between sellers' differentiated products. The incentive for information acquisition depends on the average value of products, the objective product differentiation, and their beliefs about sellers' prices. The acquired information shapes consumers' perceived product differentiation and sellers' equilibrium prices. We characterize the unique symmetric equilibrium and study comparative statics with respect to consumer information acquisition cost and sensitivity to product differentiation. (JEL D43, D82, D83)