When (not) to Persuade Consumers: Persuasive and Demarkting Information Designs

Joint with Hangcheng Zhao & Yi Zhu.

 We analyze the boundaries of Bayesian persuasion for firms that provide information to
consumers about uncertain product match, and can engineer the information structure to be
persuasive. Monopolists that cannot alter the prices they charge can utilize persuasion to in-
crease their profits, as usual. However, when prices are endogenous or when competition is
rampant, firms opt to lower their persuasive claims and instead choose to truthfully reveal the
product’s match. In cases where competition is strengthened even further, firms will choose to
demarket their products in order to soften competition. A platform that designs the information
displayed for sellers on the platform faces similar incentives, but will never choose to persuade
consumers with endogenous prices as it will lower the total revenue it can receive.

To view the seminar recording, click here.