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Monopoly, Product Quality, and Flexible Learning

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  • Jeffrey Mensch
  • Doron Ravid

Abstract

A seller offers a buyer a schedule of transfers and associated product qualities, as in Mussa and Rosen (1978). After observing this schedule, the buyer chooses a flexible costly signal about his type. We show it is without loss to focus on a class of mechanisms that compensate the buyer for his learning costs. Using these mechanisms, we prove the quality always lies strictly below the efficient level. This strict downward distortion holds even if the buyer acquires no information or when the buyer's posterior type is the highest possible given his signal, reversing the "no distortion at the top" feature that holds when information is exogenous.

Suggested Citation

  • Jeffrey Mensch & Doron Ravid, 2022. "Monopoly, Product Quality, and Flexible Learning," Papers 2202.09985, arXiv.org, revised Jun 2022.
    • Handle: RePEc:arx:papers:2202.09985
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    File URL: http://arxiv.org/pdf/2202.09985
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    References listed on IDEAS

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    Cited by:

    1. Dirk Bergemann & Tibor Heumann & Stephen Morris, 2022. "Screening with Persuasion," Papers 2212.03360, arXiv.org.

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