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Revealing Negative Information in Monopoly and Duopoly Settings: Experimental Analysis

Cited 1 time in Web of Science Cited 1 time in Scopus
Authors

Dmitry, Shapiro; Lee, Jaesun

Issue Date
2022-01
Publisher
한국경제학회
Citation
The Korean Economic Review, Vol.38 No.1, pp.167-205
Abstract
We provide an experimental analysis of the setting where a seller, either a monopolist or a duopolist, sells a product with quality that is unobservable to buyers. The seller can send either an honest or dishonest cheap-talk message to buyers about the product quality. We show that low-quality sellers have a positive propensity to communicate their low-quality to buyers. Communicating low-quality results in buyers' higher-propensity to purchase the product and introduces product differentiation in a duopoly. We do not find strong evidence that communicating low-quality information negatively affects sellers' profit: the effect is often insignificant, and in some treatments it becomes significantly positive. Finally, revealing negative information has a strong positive welfare effect in a monopoly, where it raises the likelihood of product purchase; but a weak or negative effect in a duopoly, where it boosts the likelihood of purchasing a socially inefficient low-quality product.
ISSN
0254-3737
URI
https://hdl.handle.net/10371/202038
DOI
https://doi.org/10.22841/kerdoi.2022.38.1.006
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