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Competitive Screening under Heterogeneous Information

Garrett, Daniel F., Gomes, Renato and Maestri, Lucas (2019) Competitive Screening under Heterogeneous Information. Review of Economic Studies, 86. pp. 1590-1630.

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Official URL: http://tse-fr.eu/pub/33114

Abstract

We study the interplay between informational frictions and second-degree price discrimination. Our theory recognizes that consumers differ in their tastes for quality as well as in the information they possess about available offers, which leads to dispersion over price-quality menus in equilibrium. While firms are ex-ante identical, we show that their menus are ordered so that more generous menus leave more surplus to consumers of all valuations. We explore the cross-section of equilibrium menus and variations in market conditions to generate empirical predictions on prices, qualities and markups across firms, and within a firm’s product line. For instance, more competition may raise prices for low-quality goods; yet, consumers are better off, as the qualities they receive also increase. The predictions of our model illuminate empirical findings in many markets, such as those for cell phone plans, yellow-pages advertising, cable TV and air travel.

Item Type: Article
Language: English
Date: 2019
Refereed: Yes
Uncontrolled Keywords: competition, screening, heterogeneous information, price discrimination, adverse selection
JEL codes: D82 - Asymmetric and Private Information
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 26 Nov 2018 11:57
Last Modified: 19 Jul 2019 14:11
OAI ID: oai:tse-fr.eu:33114
URI: http://publications.ut-capitole.fr/id/eprint/26461

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