This thesis delves into a monopolistic seller’s joint information disclosure and pricing strategy when introducing a new product. Consumers’ valuations of the product consist of two components — an easy-to-communicate objective attribute and a difficult-to-describe subjective attribute. The seller is only allowed to reveal information related to the objective attribute, while consumers need to incur a search cost to learn about the subjective attribute. The analysis shows the impact of search cost on optimal information provision: When the search cost is low, the seller should conceal information to retain the diamond-in-the-rough consumer. Conversely, when the search cost is high, to maintain a high price, the seller should disclose information to only invite search from the high-valua...[ Read more ]

This thesis delves into a monopolistic seller’s joint information disclosure and pricing strategy when introducing a new product. Consumers’ valuations of the product consist of two components — an easy-to-communicate objective attribute and a difficult-to-describe subjective attribute. The seller is only allowed to reveal information related to the objective attribute, while consumers need to incur a search cost to learn about the subjective attribute. The analysis shows the impact of search cost on optimal information provision: When the search cost is low, the seller should conceal information to retain the diamond-in-the-rough consumer. Conversely, when the search cost is high, to maintain a high price, the seller should disclose information to only invite search from the high-valuation consumer. In addition, we examine a fluid model with an infinite number of consumers but limited inventory. Our analysis sheds light on the impact of inventory level on optimal information provision: The seller should conceal (resp., disclose) information when the inventory is abundant (resp., scarce) because the seller is utilizing information to balance search and stock. Furthermore, we find that a fiercer demand-side competition (e.g., a larger consumer population) and/or a more sophisticated selling mechanism (e.g., auction) can diminish the seller’s revenue because the seller may mark down sharply or relinquish much more information rent to ease consumers’ apprehensions about competition. Lastly, the welfare implications for consumers are discussed. The findings indicate that larger search friction can benefit consumers, as it incentivizes the seller to disclose more information to attract search.