Competitive Sequential Screening

Abstract: Two horizontally differentiated firms compete for consumers who are partially informed about their future preferences. The firms screen consumers by offering menus of option contracts. Each consumer enters contracts with both firms. Subsequently, each consumer learns his preferences and purchases only one product. We find the unique equilibrium. Relative to spot pricing, consumption is distorted because each consumer is endogenously locked into one firm. If contracting is sufficiently early, so that consumers are less informed and hence less differentiated, consumers benefit; this reverses the conclusion in the monopoly case. Exclusive contracting further benefits consumers by intensifying competition.