Discussion Paper Details

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Title: Competitive Screening under Heterogeneous Information

Author(s): Daniel F Garrett, Renato Gomes and Lucas Maestri

Publication Date: June 2014

Keyword(s): adverse selection, competition, heterogeneous information, price discrimination and screening

Programme Area(s): Industrial Organization

Abstract: We study competition in price-quality menus when consumers privately know their valuation for quality (type), and are heterogeneously informed about the offers available in the market. While firms are ex-ante identical, the menus offered in equilibrium are ordered so that more generous menus leave more surplus uniformly over types. More generous menus provide quality more efficiently, serve a larger range of consumers, and generate a greater fraction of profits from sales of low-quality goods. By varying the mass of competing firms, or the level of informational frictions, we span the entire spectrum of competitive intensity, from perfect competition to monopoly.

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Bibliographic Reference

Garrett, D, Gomes, R and Maestri, L. 2014. 'Competitive Screening under Heterogeneous Information'. London, Centre for Economic Policy Research.