Buyer-Optimal Learning and Monopoly Pricing†

Buyer-Optimal Learning and Monopoly Pricing† AbstractThis paper analyzes a bilateral trade model where the buyer's valuation for the object is uncertain and she observes only a signal about her valuation. The seller gives a take-it-or-leave-it offer to the buyer. Our goal is to characterize those signal structures which maximize the buyer's expected payoff. We identify a buyer-optimal signal structure which generates (i) efficient trade and (ii) a unit-elastic demand. Furthermore, we show that every other buyer-optimal signal structure yields the same outcome as the one we identify: in particular, the same price. (JEL D11, D42, D82, D83, L12) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Buyer-Optimal Learning and Monopoly Pricing†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
0002-8282
D.O.I.
10.1257/aer.20160145
Publisher site
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Abstract

AbstractThis paper analyzes a bilateral trade model where the buyer's valuation for the object is uncertain and she observes only a signal about her valuation. The seller gives a take-it-or-leave-it offer to the buyer. Our goal is to characterize those signal structures which maximize the buyer's expected payoff. We identify a buyer-optimal signal structure which generates (i) efficient trade and (ii) a unit-elastic demand. Furthermore, we show that every other buyer-optimal signal structure yields the same outcome as the one we identify: in particular, the same price. (JEL D11, D42, D82, D83, L12)

Journal

American Economic ReviewAmerican Economic Association

Published: Jul 1, 2017

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