Can shopping ever be easy? Obfuscation in the information age

By email, Jim Rebitzer, one of the authors of the search frictions paper I wrote about yesterday, throws some cold water on my idea of easy, computer-enhanced health plan shopping:

I saw your post today about the possibility of friction-less insurance markets. You make very good points that I very much agree with.

Glenn Ellisson has been looking at this issue from a theoretical IO perspective. Bounded rationality and information processing costs, it turns out, are an old idea in IO (who knew?) that have been revived by electronic search engines and shoppers on the internet. In a theory model he finds that when companies can create frictions by cleverly obfuscating, an exogenous technological change that reduces frictions might actually stimulate more obfuscation. Empirically he looks at this in the context of specialized electronic search engines for computer parts.

It’s an interesting set of ideas (but as a matter of policy and practicality sort of besides the point).

Here are the cites if you are interested.

Ellison, Glenn and Sara Fisher Ellison. 2009. “Search, Obfuscation, and Price Elasticities on the Internet.” Econometrica, 77(2), 427-52.

Ellison, Glenn and Alexander Wolitzky. 2009. “A Search Cost Model of Obfuscation,” National Bureau of Economic Research, Inc, NBER Working Papers: 15237.

Ellison, Glenn. 2006. “Bounded Rationality in Industrial Organization,” N. a. P. Blundell, Advances in Economics and Econometrics: Theory and Applications, Ninth World Congress. Cambridge Univesity Press.

However, if my disutility due to technology-encouraged obfuscation stays roughly constant, I’d still prefer a 10 minute computerized search and selection process to a multi-hour one that has no possibility of jarring me from the status quo (ignoring privacy issues).


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