Preference disclosure, product design, and pricing

• Department of Economics

This event features a discussion by Goonj Mohan (University of Barcelona).

This paper analyzes voluntary cheap-talk disclosure of consumer preferences to a seller that personalizes product design and pricing. Disclosure improves product matching but allows the seller to extract a larger share of the surplus through more precise price personalization.

When the taste density is log-concave, a greedy partition, or a slight generalization of it, supports an equilibrium that maximizes ex ante consumer surplus. The partition is constructed by successively selecting the most profitable segment from the remaining consumers. In this equilibrium, all consumers purchase, but those with niche tastes disclose more information and receive more tailored products at higher prices. The price effect outweighs the matching benefit, leaving niche consumers worse off than mass consumers. The analysis extends to the environment with vertical differentiation and verifiable disclosure.

Co-author: Nenad Kos