Working Paper: CEPR ID: DP10036
Authors: Daniel Garrett; Renato Gomes; Lucas Maestri
Abstract: We study competition in price-quality menus when consumers privately know their valuation for quality (type), and are heterogeneously informed about the offers available in the market. While firms are ex-ante identical, the menus offered in equilibrium are ordered so that more generous menus leave more surplus uniformly over types. More generous menus provide quality more efficiently, serve a larger range of consumers, and generate a greater fraction of profits from sales of low-quality goods. By varying the mass of competing firms, or the level of informational frictions, we span the entire spectrum of competitive intensity, from perfect competition to monopoly.
Keywords: Adverse Selection; Competition; Heterogeneous Information; Price Discrimination; Screening
JEL Codes: D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased competition (L13) | improved outcomes for consumers (D18) |
| more generous menus (H49) | improved efficiency in quality provision (L15) |
| increased competition (L13) | higher mass assigned to menus generating more indirect utility (D11) |
| pricing strategies (D49) | menu generosity (D64) |