Research

The Benefit of Information Asymmetry: When to Sell to Informed Customers?
Decision Support Systems, 2012

Buyers are often uncertain about product valuations before they commit to purchase. In such situations, firms have an opportunity to influence the accuracy with which buyers can estimate their valuations. When buyers are uncertain about the product’s fit with their personal preferences, firms can help resolve this uncertainty by offering product previews, sampling, trials or return guarantees. When a buyer’s valuation uncertainty is caused by unpredictability in their consumption state, firms can choose advance selling – which makes buyers decide while they are unsure about their valuations – or enable buyers to make an informed decision by offering spot sales.

This paper by Professor Hemant Bhargava and Associate Professor Rachel Chen examines firms’ incentive to adopt mechanisms that endow buyers with private information – hence increase information asymmetry against the firm – and are mean preserving in the aggregate across the market.

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