Working Paper: CEPR ID: DP12049
Authors: Frdric Koessler; Vasiliki Skreta
Abstract: We study how to optimally sell a good in a bilateral asymmetric information monopoly setting with interdependent values when the informed seller can voluntarily and costlessly provide evidence about the good's characteristics. Equilibrium allocations are feasible and immune to deviations to any mechanism. We show that there is an ex-ante profit-maximizing selling procedure that is an equilibrium of the mechanism-proposal game. In contrast to posted price settings, information unravelling of product characteristics may fail even when all buyer types agree on the ranking of product quality.
Keywords: informed principal; consumer heterogeneity; interdependent valuations; product information disclosure; mechanism design; certification
JEL Codes: C72; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Seller's certification capability (L15) | Market efficiency (G14) |
| Seller's certification capability (L15) | Equilibrium allocations (D51) |
| Seller's choice of mechanism (D47) | Profits (D33) |
| Seller's certification capability (L15) | Feasible allocations (D61) |
| Seller's certification capability (L15) | Equilibrium profits (D53) |
| Unraveling of information about product characteristics (L15) | Market failures (D52) |