Pre-sale information

In markets as diverse as that for specialized industrial equipment or that for retail financial services, sellers or intermediaries may earn profits both from the sale of products and from the provision of pre-sale consultation services. We study how a seller optimally chooses the costly quality of pre-sale information, next to the price of information and the product price, and obtain clear-cut predictions on when information is over- and when it is underprovided, even though we find that information quality does not satisfy a standard single-crossing property. Buyers who are a priori more optimistic about their valuation end up paying a higher margin for information but a lower margin for the product when they subsequently exercise their option to purchase at a pre-specified price.

[1]  David P. Myatt,et al.  On the Simple Economics of Advertising, Marketing, and Product Design , 2005 .

[2]  Aloisio Araujo,et al.  Adverse Selection Problems Without the Spence-Mirrlees Condition , 2010, J. Econ. Theory.

[3]  Péter Eso,et al.  The price of advice , 2007 .

[4]  X. Vives.  Oligopoly Pricing: Old Ideas and New Tools , 1999 .

[5]  Christoph H. Loch,et al.  Collaborative Prototyping and the Pricing of Custom - Designed Products , 2004, Manag. Sci..

[6]  D. Sappington,et al.  Supplying Information to Facilitate Price Discrimination , 1994 .

[7]  D. P. Baron,et al.  Regulation and information in a continuing relationship , 1984 .

[8]  Juan José Ganuza,et al.  Signal Orderings Based on Dispersion and the Supply of Private Information in Auctions , 2010 .

[9]  A. Saak,et al.  The Value of Private Information in Monopoly , 2008 .

[10]  Tracy R. Lewis,et al.  Information Management in Incentive Problems , 1997, Journal of Political Economy.

[11]  Bruno Jullien,et al.  Participation Constraints in Adverse Selection Models , 2000, J. Econ. Theory.

[12]  Péter Eso,et al.  Optimal Information Disclosure in Auctions and the Handicap Auction , 2007 .

[13]  P. Courty,et al.  Sequential Screening , 1998 .

[14]  Paul R. Milgrom,et al.  Envelope Theorems for Arbitrary Choice Sets , 2002 .

[15]  Roland Strausz,et al.  Optimal Procurement Contracts with Pre--Project Planning , 2011 .

[16]  Heski Bar-Isaac,et al.  Information Gathering and Marketing , 2008 .

[17]  Claudio Mezzetti,et al.  Principals Competing for an Agent in the Presence of Adverse Selection and Moral Hazard , 1993 .

[18]  Giovanni Maggi,et al.  On Countervailing Incentives , 1995 .