Competitive Sequential Screening

Abstract

We study competition between firms that contract with consumers before the consumers fully learn their product preferences. In a Hotelling duopoly, firms screen consumers by offering menus of option contracts. We characterize the unique equilibrium. Consumers select contracts from both firms. Each consumer is endogenously locked into the firm from which he chooses an option with a lower strike price. Lock-in yields inefficient consumption. Yet earlier contracting stiffens competition because less informed consumers are more homogeneous. Sufficiently early contracting raises consumer surplus relative to spot pricing -- reversing the ranking under monopoly. Exclusive contracting further increases consumer surplus by intensifying competition.