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Cheap-Talk Disclosure of Negative Information and Risk-Averse Buyers

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Authors

Shapiro, Dmitry; Huh, Seung

Issue Date
2021-01
Publisher
경제연구소
Citation
Seoul Journal of Economics, Vol.34 No.3, pp.365-392
Abstract
In this paper, we study the incentives of low-quality sellers to separate them from high-quality sellers. We consider a framework with asymmetric quality information where the only way to communicate quality is via cheap-talk messages. In this framework, any separating strategy pursued by high-quality sellers can be imitated costlessly by low-quality sellers. We show that in the duopoly setting with risk-averse buyers, equilibria exist, where low-quality sellers voluntarily disclose negative information about their products. If the seller is a monopolist or buyers are risk-neutral, such equilibria do not exist.
ISSN
1225-0279
URI
https://hdl.handle.net/10371/202040
DOI
https://doi.org/10.22904/sje.2021.34.3.002
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