Revenue-Maximizing Overselling in Markets with Asymmetric Information
37 Pages Posted: 6 Oct 2021 Last revised: 5 Feb 2024
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: Suggested Citation