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Information Design in the Holdup Problem

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  • Daniele Condorelli
  • Balázs Szentes

Abstract

We analyze a bilateral trade model where the buyer chooses the distribution of her valuation for the good. The seller, after observing the buyer’s distribution but not the realized valuation, makes a take-it-or-leave-it offer. If distributions are costless, the price and the payoffs of both the buyer and the seller are shown to be 1/e in the unique equilibrium outcome. The buyer’s equilibrium distribution generates a unit-elastic demand, and trade is ex post efficient. These properties are shown to be preserved even when different distributions are differentially costly as long as the cost is monotone in the dispersion of the distribution.

Suggested Citation

  • Daniele Condorelli & Balázs Szentes, 2020. "Information Design in the Holdup Problem," Journal of Political Economy, University of Chicago Press, vol. 128(2), pages 681-709.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/704574
    DOI: 10.1086/704574
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    Citations

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    Cited by:

    1. Mark Armstrong & Jidong Zhou, 2022. "Consumer Information and the Limits to Competition," American Economic Review, American Economic Association, vol. 112(2), pages 534-577, February.
    2. Larionov, Daniil & Pham, Hien & Yamashita, Takuro & Zhu, Shuguang, 2021. "First Best Implementation with Costly Information Acquisition," TSE Working Papers 21-1261, Toulouse School of Economics (TSE), revised Apr 2022.
    3. Yang, Kai Hao, 2021. "Efficient demands in a multi-product monopoly," Journal of Economic Theory, Elsevier, vol. 197(C).
    4. Daniel Krähmer, 2024. "The Hold-Up Problem with Flexible Unobservable Investments," ECONtribute Discussion Papers Series 278, University of Bonn and University of Cologne, Germany.
    5. Pak Hung Au & Mark Whitmeyer, 2021. "Attraction Versus Persuasion," HKUST CEP Working Papers Series 202102, HKUST Center for Economic Policy.
    6. Condorelli, Daniele & Szentes, Balazs, 2020. "Surplus Bounds in Cournot Monopoly and Competition," The Warwick Economics Research Paper Series (TWERPS) 1292, University of Warwick, Department of Economics.
    7. Wanchang Zhang, 2021. "Correlation-Robust Optimal Auctions," Papers 2105.04697, arXiv.org, revised May 2022.
    8. Brian C. Albrecht & Mark Whitmeyer, 2023. "Comparison Shopping: Learning Before Buying From Duopolists," Papers 2302.06580, arXiv.org, revised Apr 2023.
    9. Mustafa Dogan & Ju Hu, 2022. "Consumer search and optimal information," RAND Journal of Economics, RAND Corporation, vol. 53(2), pages 386-403, June.
    10. Garrett, Daniel F. & Georgiadis, George & Smolin, Alex & Szentes, Balázs, 2023. "Optimal technology design," Journal of Economic Theory, Elsevier, vol. 209(C).
    11. Schottmüller, Christoph, 2023. "Optimal information structures in bilateral trade," Theoretical Economics, Econometric Society, vol. 18(1), January.
    12. Condorelli, Daniele & Szentes, Balazs, 2020. "Surplus Bounds in Cournot Monopoly and Competition," CRETA Online Discussion Paper Series 62, Centre for Research in Economic Theory and its Applications CRETA.
    13. Condorelli, Daniele, 2022. "A lower-bound on monopoly profit for log-concave demand," Economics Letters, Elsevier, vol. 210(C).
    14. Anja Prummer, "undated". "Discrimination in Promotion," Working Papers 905, Queen Mary University of London, School of Economics and Finance.
    15. Vasudha Jain & Mark Whitmeyer, 2021. "Search and Competition with Flexible Investigations," Papers 2104.13159, arXiv.org.
    16. Anja Prummer & Francesco Nava, 2023. "Value Design in Optimal Mechanisms," Economics working papers 2023-05, Department of Economics, Johannes Kepler University Linz, Austria.
    17. Wanchang Zhang, 2022. "Auctioning Multiple Goods without Priors," Papers 2204.13726, arXiv.org.
    18. Elliott, M. & Galeotti, A. & Koh, A. & Li, W., 2023. "Matching and Information Design in Marketplaces," Cambridge Working Papers in Economics 2313, Faculty of Economics, University of Cambridge.
    19. Wanchang Zhang, 2022. "Information-Robust Optimal Auctions," Papers 2205.04137, arXiv.org.

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