Buyer-Optimal Extensionproof Information

Abstract

Motivated by the regulation of product information, we study buyer-optimal information structures under monopoly pricing. The information structure determines the buyer’s private learning of his valuation and in consequence the price the seller charges. By adding information, the seller may change the learning in her favor. We introduce the constraint that the information structure be extensionproof: the seller must have no incentive to add information. A two-parameter class of information structures implements every implementable buyer payoff. For some prior beliefs, but not for all, buyer-optimal information also results in efficient trade and in the same payoff for the seller as perfect learning.

Keywords: information design, monopoly, regulation

JEL Classification: D42, D82, D83, L51