Faculty of Economics and Business Administration Publications Database

Pre-sale Information

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Authors:
Hoffmann, Florian
Source:
Volume: 146
Number: 6
Pages: 2333 - 2355
Month: November
ISSN-Print: 0022-0531
Link External Source: Online Version
Year: 2011
Keywords: Price discrimination; Single crossing; Information
Abstract: In markets as diverse as that for specialized industrial equipment or that for retail financial services, sellers or intermediaries may earn profits both from the sale of products and from the provision of pre-sale consultation services. We study how a seller optimally chooses the costly quality of pre-sale information, next to the price of information and the product price, and obtain clear-cut predictions on when information is over- and when it is underprovided, even though we find that information quality does not satisfy a standard single-crossing property. Buyers who are a priori more optimistic about their valuation end up paying a higher margin for information but a lower margin for the product when they subsequently exercise their option to purchase at a pre-specified price.
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