Public Report, Price, and Quality

Authors


  • We thank Sambuddha Ghosh, Jacob Glazer, Steve Matthews, and seminar participants at Boston University, Carlos III Universidad de Madrid, City University of Hong Kong, Duke University, INSEE, University of Munich, University of Naples Fedrico II, the US Department of Justice, the Ninth Annual International Industrial Organization Conference in Boston, and the 10th Annual Columbia-Duke-Northwestern IO Theory Conference for their comments. We also thank a Coeditor and two referees for their advice. Part of this research was done while the first author was visiting Carlos III Universidad de Madrid, and Tufts University and while the second author was with the Max Weber Programme at the European University Institute; their financial support and hospitality are acknowledged.

Abstract

A monopolist produces a good with two qualities. All consumers have the same valuation of the first quality, but their valuations of the second vary, and are their private information. A public agency can verify qualities, and make credible reports to consumers. In Full Quality Report, the public agency reports both qualities. In Average Quality Report, it reports a weighted average of qualities. The equilibrium prices and qualities in Full Quality Report can be implemented by Average Quality Report. Equilibrium prices and qualities in Average Quality Report give higher consumer surplus than Full Quality Report. Bertrand competition under Average Quality Report yields first-best prices and qualities.

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