Monopolistic screening and uninformed buyers |
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| Institution: | 1. School of Information Technology, Jiangxi University of Finance and Economics, Nanchang 330013, China;2. School of Business Administration, Northeastern University, Shenyang 110819, China;3. Department of Economics, Acadia University, Wolfville, NS B4P 2R6, Canada;4. School of Business Administration, Acadia University, Wolfville, NS B4P 2R6, Canada;1. Department of Finance, School of Economics and Management, Changzhou University, Changzhou 213164, PR China;2. School of Business Administration, Zhejiang Gongshang University, Hangzhou 310018, PR China;3. Department of Accounting and Finance, School of Management, Zhejiang University, Hangzhou 310058, PR China |
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| Abstract: | In the standard monopolistic screening problem, buyers obtain information rent as a result of possessing private information; if a contract can be offered before the buyer knows his valuation, the seller can extract the full (expected) surplus. I consider a situation where the buyer may or may not have private information about his valuation at the time the contract is offered. Is the seller (strictly) better off as compared to the standard situation? The answer depends crucially on the specific model. In the 2-types model, unless the probability (that the buyer is uninformed) reaches a critical threshold, the seller is unable to benefit from the buyer's ignorance. In the continuum-types model, on the other hand, optimal expected profit is strictly higher than in the standard model whenever this probability is positive. |
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