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.

Additional Metadata
Keywords Price discrimination, Single crossing, Information
JEL Monopoly (jel D42), Asymmetric and Private Information (jel D82)
Persistent URL dx.doi.org/10.1016/j.jet.2011.10.009, hdl.handle.net/1765/112470
Journal Journal of Economic Theory
Citation
Hoffmann, F, & Inderst, R. (2011). Pre-sale information. Journal of Economic Theory, 146(6), 2333–2355. doi:10.1016/j.jet.2011.10.009