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Does costly persuasion signal quality?

Author

Listed:
  • Carroni, Elias
  • Ferrari, Luca
  • Pignataro, Giuseppe

Abstract

We study a buyer-seller setting where the seller's quality is private information and the buyer's reservation value depends on an unknown state. The seller can persuade the buyer by designing a costly Bayesian experiment. We show that a high-quality seller provides more precise information and is willing to incur higher costs, as this enables selling at higher prices. When information is costless, separation requires price distortion. By contrast, when experimentation is costly, the high-quality seller deters mimicking through a more informative experiment and sets prices optimally given the experiment design, thereby reducing the need for price distortion.

Suggested Citation

  • Carroni, Elias & Ferrari, Luca & Pignataro, Giuseppe, 2025. "Does costly persuasion signal quality?," International Journal of Industrial Organization, Elsevier, vol. 103(PB).
    • Handle: RePEc:eee:indorg:v:103:y:2025:i:pb:s0167718725000712
    DOI: 10.1016/j.ijindorg.2025.103205
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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