Buyer-Optimal Information with Nonlinear Technology
51 Pages Posted: 8 Jan 2019 Last revised: 11 Nov 2019
Date Written: July 9, 2019
Abstract
This paper explores the buyer-optimal information structures in a monopolistic screening context with nonlinear production technology. It shows that the buyer's optimal surplus may increase even when the production cost becomes more uncertain or when the efficient surplus decreases. Under a binary prior, this paper further shows that the buyer-optimal information structures must lie in a family described by truncated Pareto distributions. Such characterization effectively reduces the surplus maximization problem to a monopsony's pricing problem, which further implies that the buyer-optimal surplus is quasi-convex in technologies that are ranked by the rotational order.
Keywords: Buyer surplus, information structure, mechanism design, nonlinear pricing, comparative statics, virtual valuation.
JEL Classification: C72, D42, D44, D82, D83
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