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Robust Pricing for Quality Disclosure

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  • Tan Gan
  • Hongcheng Li

Abstract

A platform charges a producer for disclosing hard evidence of product quality to a consumer before trading. To tackle strategic uncertainty, the platform offers the producer quality-dependent and disclosure probability-dependent prices to maximize its revenue guarantee across all equilibria. The platform optimally offers off-path disclosure options to incentivize each producer type to "conquer herself" by deviating continually to full disclosure, yielding strictly convex advertising price functions of disclosure probability. Moreover, the platform prioritizes attracting higher types into service and offers them higher rents despite the absence of adverse selection. Comparative statics demonstrate that more informative hard evidence increases the platform's revenue guarantee.

Suggested Citation

  • Tan Gan & Hongcheng Li, 2024. "Robust Pricing for Quality Disclosure," Papers 2404.06019, arXiv.org, revised Nov 2024.
    • Handle: RePEc:arx:papers:2404.06019
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    References listed on IDEAS

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    1. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
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