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SMU SOE Seminar (Sep 7, 2018): Incentives of Low-Quality Sellers to Disclose Negative Information
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TOPIC:
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INCENTIVES OF LOW-QUALITY SELLERS TO DISCLOSE NEGATIVE INFORMATION
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ABSTRACT
We study incentives of low-quality sellers to disclose negative information when the only way to communicate one's quality is cheap-talk messages. This setting limits ability of high-quality sellers to separate as any communication strategy they pursue can be costlessly imitated by low-quality sellers. Two factors that can incentivize low-quality sellers to communicate their quality are buyers' risk-attitude and competition. Quality disclosure reduces buyers' risk increasing their willingness to pay. It also introduces product differentiation softening the competition. We show that equilibria where low-quality sellers separate exist under monopoly and duopoly. Equilibria where high-quality sellers separate exist under duopoly only.
Keywords: Negative information, Product differentiation, Cheap talk, Lemon markets
JEL Codes: D21, L15
Click here to view the paper.
Click here to view the CV.
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PRESENTER
Dmitry Shapiro
Seoul National University
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RESEARCH FIELDS
Applied Microeconomic Theory
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DATE:
7 September 2018 (Friday)
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TIME:
4pm - 5.30pm
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VENUE:
Meeting Room 5.1, Level 5
School of Economics
Singapore Management University
90 Stamford Road
Singapore 178903
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