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Signalling by Bayesian Persuasion and Pricing Strategy

Author

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  • Yanlin Chen
  • Jun Zhang

Abstract

This article investigates how a privately informed seller could signal her type through Bayesian persuasion and pricing strategy. We find that it is generally impossible to achieve separation through one channel alone. Furthermore, the outcome that survives the intuitive criterion always exists and is unique. This outcome is separating, for which a closed-form solution is provided. The signalling concern forces the high-type seller to disclose inefficiently more information and charge a higher price, resulting in fewer sales and lower profit. Finally, we show that a regulation on minimal quality could potentially hurt social welfare, and private information hurts the seller.

Suggested Citation

  • Yanlin Chen & Jun Zhang, 2020. "Signalling by Bayesian Persuasion and Pricing Strategy," The Economic Journal, Royal Economic Society, vol. 130(628), pages 976-1007.
  • Handle: RePEc:oup:econjl:v:130:y:2020:i:628:p:976-1007.
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    File URL: http://hdl.handle.net/10.1093/ej/ueaa002
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    Cited by:

    1. Elliott, M. & Galeotti., A. & Koh., A. & Li, W., 2021. "Market Segmentation Through Information," Cambridge Working Papers in Economics 2105, Faculty of Economics, University of Cambridge.
    2. Frédéric Koessler & Vasiliki Skreta, 2023. "Informed Information Design," Journal of Political Economy, University of Chicago Press, vol. 131(11), pages 3186-3232.
    3. Skreta, Vasiliki & Koessler, Frédéric, 2021. "Information Design by an Informed Designer," CEPR Discussion Papers 15709, C.E.P.R. Discussion Papers.
    4. Figueroa, Nicolás & Guadalupi, Carla, 2023. "Signaling through tests," The Quarterly Review of Economics and Finance, Elsevier, vol. 92(C), pages 25-34.
    5. Charlson, G., 2021. "Rating the Competition: Seller Ratings and Intra-Platform Competition," Cambridge Working Papers in Economics 2106, Faculty of Economics, University of Cambridge.
    6. Andriy Zapechelnyuk, 2023. "On the equivalence of information design by uninformed and informed principals," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(4), pages 1051-1067, November.
    7. Xiaoxiao Hu & Haoran Lei, 2023. "Information transmission in monopolistic credence goods markets," Papers 2303.13295, arXiv.org, revised Apr 2023.
    8. Arianna Degan & Ming Li, 2021. "Persuasion with costly precision," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(3), pages 869-908, October.

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