Buyer-optimal extensionproof information

Stefan Terstiege, Cedric Wasser

Research output: Working paperProfessional

Abstract

We study buyer-optimal information structures under monopoly pricing. The information structure determines how well the buyer learns his valuation and affects, via the induced distribution of posterior valuations, the price charged by the seller. Motivated by the regulation of product information, we assume that the seller can disclose more if the learning is imperfect. Extension proof information structures prevent such disclosure, which is a constraint in the design problem. Our main result identifies a two-parameter class of information structures that implements every implementable buyer payoff. An upper bound on the buyer payoff where the social surplus is maximized and the seller obtains just her perfect-information payoff is attainable with some, but not all priors. When this bound is not attainable, optimal information structures can result in a higher payoff for the seller and in an inefficient allocation.
Original languageEnglish
PublisherSocial Science Research Network (SSRN)
Number of pages64
Publication statusPublished - 2019

JEL classifications

  • d42 - Market Structure and Pricing: Monopoly
  • d82 - "Asymmetric and Private Information; Mechanism Design"
  • d83 - "Search; Learning; Information and Knowledge; Communication; Belief"
  • l51 - Economics of Regulation

Keywords

  • information design
  • monopoly
  • regulation

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