Revenue-Maximizing Overselling in Markets with Asymmetric Information

37 Pages Posted: 6 Oct 2021 Last revised: 5 Feb 2024

See all articles by Fan Wu

Fan Wu

California Institute of Technology (Caltech)

Jie Zheng

Shandong University - Center for Economic Research

Date Written: September 5, 2021

Abstract

In markets, sellers tend to oversell by exaggerating the quality of their goods. We study a seller's joint information and price design problem where a buyer has some private information. The buyer knows her type of valuation and the seller can assess the good's quality. We show that the model rationalizes overselling, even when the buyer is a rational Bayesian. Moreover, overselling is robust to whether the buyer can communicate. Compared to full disclosure, overselling is Pareto improving, making both the seller and the buyer strictly better off. A policy implication is that a benevolent central planner should not enforce full disclosure.

Keywords: Bayesian Persuasion, Asymmetric Information, Information Design

JEL Classification: C72, D82

Suggested Citation

Wu, Fan and Zheng, Jie, Revenue-Maximizing Overselling in Markets with Asymmetric Information (September 5, 2021). Available at SSRN: https://ssrn.com/abstract=3917673 or http://dx.doi.org/10.2139/ssrn.3917673

Fan Wu (Contact Author)

California Institute of Technology (Caltech) ( email )

Pasadena, CA 91125
United States

Jie Zheng

Shandong University - Center for Economic Research ( email )

Jinan, Shandong 250100
China

HOME PAGE: http://https://meetecon.com/jie/

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