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Information transmission in monopolistic credence goods markets

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  • Xiaoxiao Hu
  • Haoran Lei

Abstract

We study a general credence goods model with N problem types and N treatments. Communication between the expert seller and the client is modeled as cheap talk. We find that the expert's equilibrium payoffs admit a geometric characterization, described by the quasiconcave envelope of his belief-based profits function under discriminatory pricing. We establish the existence of client-worst equilibria, apply the geometric characterization to previous research on credence goods, and provide a necessary and sufficient condition for when communication benefits the expert. For the binary case, we solve for all equilibria and characterize client's possible welfare among all equilibria.

Suggested Citation

  • Xiaoxiao Hu & Haoran Lei, 2023. "Information transmission in monopolistic credence goods markets," Papers 2303.13295, arXiv.org, revised Apr 2023.
    • Handle: RePEc:arx:papers:2303.13295
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    References listed on IDEAS

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