Buyer-Optimal Extensionproof Information

64 Pages Posted: 25 Jul 2017 Last revised: 17 Sep 2019

See all articles by Stefan Terstiege

Stefan Terstiege

Maastricht University - Department of Economics

Cédric Wasser

University of Basel - Faculty of Business and Economics

Date Written: September 16, 2019

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.

Keywords: information design, monopoly, regulation

JEL Classification: D42, D82, D83, L51

Suggested Citation

Terstiege, Stefan and Wasser, Cédric, Buyer-Optimal Extensionproof Information (September 16, 2019). Available at SSRN: https://ssrn.com/abstract=3006600 or http://dx.doi.org/10.2139/ssrn.3006600

Stefan Terstiege

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Cédric Wasser (Contact Author)

University of Basel - Faculty of Business and Economics ( email )

Peter Merian-Weg 6
Basel, 4002
Switzerland

HOME PAGE: http://www.cedricwasser.net

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