Buyer-Optimal Information with Nonlinear Technology

51 Pages Posted: 8 Jan 2019 Last revised: 11 Nov 2019

See all articles by Kai Hao Yang

Kai Hao Yang

Cowles Foundation for Economic Research

Date Written: July 9, 2019

Abstract

This paper explores the buyer-optimal information structures in a monopolistic screening context with nonlinear production technology. It shows that the buyer's optimal surplus may increase even when the production cost becomes more uncertain or when the efficient surplus decreases. Under a binary prior, this paper further shows that the buyer-optimal information structures must lie in a family described by truncated Pareto distributions. Such characterization effectively reduces the surplus maximization problem to a monopsony's pricing problem, which further implies that the buyer-optimal surplus is quasi-convex in technologies that are ranked by the rotational order.

Keywords: Buyer surplus, information structure, mechanism design, nonlinear pricing, comparative statics, virtual valuation.

JEL Classification: C72, D42, D44, D82, D83

Suggested Citation

Yang, Kai Hao, Buyer-Optimal Information with Nonlinear Technology (July 9, 2019). Available at SSRN: https://ssrn.com/abstract=3306455 or http://dx.doi.org/10.2139/ssrn.3306455

Kai Hao Yang (Contact Author)

Cowles Foundation for Economic Research ( email )

New Haven, CT 06520
United States

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