SMU SOE Seminar (Sep 7, 2018): 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.
		PRESENTER Dmitry Shapiro Seoul National University
		RESEARCH FIELDS Applied Microeconomic Theory
		DATE: 7 September 2018 (Friday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903