DP10036 Competitive Screening under Heterogeneous Information

Author(s): Daniel F Garrett, Renato Gomes, Lucas Maestri
Publication Date: June 2014
Keyword(s): adverse selection, competition, heterogeneous information, price discrimination, screening
JEL(s): D82
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10036

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.