Costs Of Search

Some scholars examined advertising role in reducing consumers’ search costs. Search costs include the time and effort associated with obtaining and processing information while search benefits include lower price and / or higher quality. One fundamental concept of this is that a rational consumer will continue to search for and process information only to the point where the marginal benefits of doing so outweighs the marginal costs. Basing on this rational consumer will not necessarily process all available advertisement information.

They focused primarily on advertising as a source of price information where the perception of benefits accruing from searching for and processing adverts with such information would vary as a function of various factors including price variability. Economics of information (EOI) was later broadened to include advertising as source of information about product qualities in general thus making the benefits of finding and processing such acts vary as a function of the type product / attribute being advertised.

EOI distinguishes between products in terms of whether consumers can evaluate their critical characteristics before purchase (for search products) and after purchase and use (for experience products). It also suggests a relationship between buyers and sellers so much that sellers will provide information in manner consistent with their understanding of buyers’ beliefs. Thirdly it suggests that consumers will be more sceptical of advert claims involving experience products than search products.

EOI relies on correspondence between belief and perceptions and behaviour. More information is generally desirable and of interest to consumers to the extent that it does not create information overload. Belief and perceptions about a product (like white detergent is best when washing white clothes) may lead to a certain behaviour (choosing white detergent over blue detergent). This is an important factor in advertising.