Signalling by Bayesian Persuasion and Pricing Strategy

Abstract

Abstract This article investigates how a privately informed seller could signal her type through Bayesian persuasion and pricing strategy. We find that it is generally impossible to achieve separation through one channel alone. Furthermore, the outcome that survives the intuitive criterion always exists and is unique. This outcome is separating, for which a closed-form solution is provided. The signalling concern forces the high-type seller to disclose inefficiently more information and charge a higher price, resulting in fewer sales and lower profit. Finally, we show that a regulation on minimal quality could potentially hurt social welfare, and private information hurts the seller.