Selling with Evidence (with Frederic Koessler)

Abstract:
Consider a privately informed seller who can propose any selling procedure to a single buyer. Both the seller’s reservation value (cost) and the buyer’s valuation can depend on the product characteristics and on the buyer’s taste (interdependent values). Consumer taste is heterogeneous and product information is voluntarily and costlessly certifiable by the seller. We characterize feasible selling mechanisms under any certifiability structure. While the seller’s certification ability enlarges the set of feasibleselling procedures because it relaxes his incentive constraints, it also makes deviations more compelling as a high-type seller can deviate and provide evidence of his quality. Our main result is the characterization of the entire set of equilibria: Equilibrium outcomes are ex-ante optimal for the seller and generically unique. The classical information unravelling result does not occur even when all consumer types agree on the ranking of product quality. In general, posted prices are sub-optimal and in contrast to the case where the seller can only post prices, his ability to certify increases profits compared to the case where his product information is public, both from the ex-ante and the interim perspectives.