DP12049 Selling with Evidence

Author(s): Frédéric Koessler, Vasiliki Skreta
Publication Date: May 2017
Keyword(s): Informed principal; consumer heterogeneity; interdependent valuations; product information disclosure; mechanism design; certification
JEL(s): C72, D82
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12049

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.