Selling with Evidence (wit h Frederic Koessler)
Abstract:
Con
sider a privately informed seller who can propose any selling procedure to
a single buyer. Both the seller’s reservation value (cost) and the buyer’s
valuation can depend on the product characteristics and on the buyer’s tast
e (interdependent values). Consumer taste is heterogeneous and product info
rmation is voluntarily and costlessly certifiable by the seller. We charact
erize feasible selling mechanisms under any certifiability structure. While
the seller’s certification ability enlarges the set of feasibleselling pro
cedures because it relaxes his incentive constraints, it also makes deviati
ons more compelling as a high-type seller can deviate and provide evidence
of his quality. Our main result is the characterization of the entire set o
f equilibria: Equilibrium outcomes are ex-ante optimal for the seller and g
enerically unique. The classical information unravelling result does not oc
cur even when all consumer types agree on the ranking of product quality. I
n general, posted prices are sub-optimal and in contrast to the case where
the seller can only post prices, his ability to certify increases profits c
ompared to the case where his product information is public, both from the
ex-ante and the interim perspectives.