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Information design in the holdup problem

Author

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  • Condorelli, Daniele
  • Szentes, Balázs

Abstract

We analyze a bilateral trade model where the buyer chooses the distribution of her valuation for the good. The seller, after observing the buyer’s distribution but not the realized valuation, makes a take-it-or-leave-it offer. If distributions are costless, the price and the payoffs of both the buyer and the seller are shown to be 1=e in the unique equilibrium outcome. The buyer’s equilibrium distribution generates a unit-elastic demand, and trade is ex post efficient. These properties are shown to be preserved even when different distributions are differentially costly as long as the cost is monotone in the dispersion of the distribution.

Suggested Citation

  • Condorelli, Daniele & Szentes, Balázs, 2020. "Information design in the holdup problem," LSE Research Online Documents on Economics 90620, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:90620
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    File URL: http://eprints.lse.ac.uk/90620/
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    References listed on IDEAS

    as
    1. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2015. "The Limits of Price Discrimination," American Economic Review, American Economic Association, vol. 105(3), pages 921-957, March.
    2. Gul, Faruk, 2001. "Unobservable Investment and the Hold-Up Problem," Econometrica, Econometric Society, vol. 69(2), pages 343-376, March.
    3. Dirk Bergemann & Karl H. Schlag, 2012. "Pricing Without Priors," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 12, pages 405-415, World Scientific Publishing Co. Pte. Ltd..
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Schottmüller, Christoph, 2023. "Optimal information structures in bilateral trade," Theoretical Economics, Econometric Society, vol. 18(1), January.
    2. Condorelli, Daniele & Szentes, Balazs, 2020. "Surplus Bounds in Cournot Monopoly and Competition," CRETA Online Discussion Paper Series 62, Centre for Research in Economic Theory and its Applications CRETA.
    3. Mark Armstrong & Jidong Zhou, 2022. "Consumer Information and the Limits to Competition," American Economic Review, American Economic Association, vol. 112(2), pages 534-577, February.
    4. Gottardi, Piero & Mezzetti, Claudio, 2024. "Shuttle diplomacy," Journal of Economic Theory, Elsevier, vol. 216(C).
    5. Larionov, Daniil & Pham, Hien & Yamashita, Takuro & Zhu, Shuguang, 2021. "First Best Implementation with Costly Information Acquisition," TSE Working Papers 21-1261, Toulouse School of Economics (TSE), revised Apr 2022.
    6. Yang, Kai Hao, 2021. "Efficient demands in a multi-product monopoly," Journal of Economic Theory, Elsevier, vol. 197(C).
    7. Daniel Krähmer, 2024. "The Hold-Up Problem with Flexible Unobservable Investments," ECONtribute Discussion Papers Series 278, University of Bonn and University of Cologne, Germany.
    8. Garrett, Daniel F. & Georgiadis, George & Smolin, Alex & Szentes, Balázs, 2023. "Optimal technology design," Journal of Economic Theory, Elsevier, vol. 209(C).
    9. Condorelli, Daniele, 2022. "A lower-bound on monopoly profit for log-concave demand," Economics Letters, Elsevier, vol. 210(C).
    10. Pak Hung Au & Mark Whitmeyer, 2021. "Attraction Versus Persuasion," HKUST CEP Working Papers Series 202102, HKUST Center for Economic Policy.
    11. Condorelli, Daniele & Szentes, Balazs, 2020. "Surplus Bounds in Cournot Monopoly and Competition," The Warwick Economics Research Paper Series (TWERPS) 1292, University of Warwick, Department of Economics.
    12. Wanchang Zhang, 2021. "Correlation-Robust Optimal Auctions," Papers 2105.04697, arXiv.org, revised May 2022.
    13. Anja Prummer, "undated". "Discrimination in Promotion," Working Papers 905, Queen Mary University of London, School of Economics and Finance.
    14. Vasudha Jain & Mark Whitmeyer, 2021. "Search and Competition with Flexible Investigations," Papers 2104.13159, arXiv.org.
    15. Manea, Mihai & Maskin, Eric, 2023. "Withholding and damage in Bayesian trade mechanisms," Games and Economic Behavior, Elsevier, vol. 142(C), pages 243-265.
    16. Brian C. Albrecht & Mark Whitmeyer, 2023. "Comparison Shopping: Learning Before Buying From Duopolists," Papers 2302.06580, arXiv.org, revised Apr 2023.
    17. Anja Prummer & Francesco Nava, 2023. "Value Design in Optimal Mechanisms," Economics working papers 2023-05, Department of Economics, Johannes Kepler University Linz, Austria.
    18. Mustafa Dogan & Ju Hu, 2022. "Consumer search and optimal information," RAND Journal of Economics, RAND Corporation, vol. 53(2), pages 386-403, June.
    19. Wanchang Zhang, 2022. "Auctioning Multiple Goods without Priors," Papers 2204.13726, arXiv.org.
    20. Daniel Krähmer, 2024. "The hold-up problem with flexible unobservable investments," CRC TR 224 Discussion Paper Series crctr224_2024_523, University of Bonn and University of Mannheim, Germany.
    21. Wanchang Zhang, 2022. "Information-Robust Optimal Auctions," Papers 2205.04137, arXiv.org.

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    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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