Sunday Seminar | Jeffrey Mensch, Monopoly, Product Quality, and Flexibility Learning
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 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.
location: Elath Hall, 2nd floor, Feldman Building, Edmond Safra Campus