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Monopolistic Signal Provision

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  • Rayo Luis

    (The London School of Economics and Political Science, Department of Management, London, United Kingdom)

Abstract

I study a monopolist who sells a signal to a consumer with a hidden type. The consumer uses this signal to obtain social status, defined as the expectation of the consumer’s type conditional on the signal. The monopolist must decide how accurately different types are revealed. When pooling subsets of types, she reduces social surplus, but extracts greater information rents. I derive the optimal mechanism by examining the covariance between the consumer’s type and his virtual marginal value of social status.

Suggested Citation

  • Rayo Luis, 2013. "Monopolistic Signal Provision," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 13(1), pages 1-32, May.
    • Handle: RePEc:bpj:bejtec:v:13:y:2013:i:1:p:32:n:1
    DOI: 10.1515/bejte-2012-0003
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    References listed on IDEAS

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    1. Ramey, Garey, 1996. "D1 Signaling Equilibria with Multiple Signals and a Continuum of Types," Journal of Economic Theory, Elsevier, vol. 69(2), pages 508-531, May.
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    4. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
    5. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    6. Nick Vikander, 2011. "Targeted Advertising and Social Status," Tinbergen Institute Discussion Papers 11-016/1, Tinbergen Institute.
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    Cited by:

    1. Semyon Malamud & Andreas Schrimpf, 2021. "Persuasion by Dimension Reduction," Swiss Finance Institute Research Paper Series 21-69, Swiss Finance Institute.
    2. Friedrichsen, Jana, 2013. "Image concerns and the provision of quality," Discussion Papers, Research Unit: Market Behavior SP II 2013-211, WZB Berlin Social Science Center.
    3. Onuchic, Paula & Ray, Debraj, 2023. "Conveying value via categories," Theoretical Economics, Econometric Society, vol. 18(4), November.
    4. Gilat Levy & Ronny Razin, 2015. "Preferences over Equality in the Presence of Costly Income Sorting," American Economic Journal: Microeconomics, American Economic Association, vol. 7(2), pages 308-337, May.
    5. Heidhues, Paul & Köszegi, Botond, 2018. "Behavioral Industrial Organization," CEPR Discussion Papers 12988, C.E.P.R. Discussion Papers.

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