RESEARCH
Working Papers
(Job Market Paper)
(Resubmitted to Management Science, Presented at 2023 INFORMS Annual Meeting in Phoenix, AZ, Scheduled to present at 2024 Annual Conference of EARIE, University of Amsterdam)
In conspicuous consumption, if consumers lack information about market demand, they are uncertain about the exclusivity for which they are willing to pay a premium. The price set by a monopolistic firm with an information advantage can be a signal of product exclusivity to consumers. In a signaling game, we show that the consumer's heuristic, that higher prices justify higher levels of exclusivity, supports the equilibria where prices are pooling or separating signals. In these equilibria, as compared to the perfect-information benchmark, the firm earns a higher profit in the premium luxury market, where most potential consumers are high-type, and a lower profit in the affordable luxury market, where there is a large proportion of low-type consumers. In addition, the difference in consumption value between high- and low-type consumers, as well as consumers' preference for exclusivity, affect the firm's profit in imperfect-information equilibria, which generate important managerial implications for product design and marketing strategies.
(Presented at 2023 Midwest International Trade & Theory Conference in Atlanta, GA)
The sender may have to use the same persuasion strategy to persuade a group of receivers. An optimal strategy to persuade targeted receivers may provide unnecessary information to some other receivers with different prior beliefs. Such unnecessary information may change these receivers' beliefs and actions in ways that the sender does not desire, resulting in over-persuasion. This study investigates when the over-persuasion issue arises and how mechanism design can address it. We propose a mechanism in which contract transfer is contingent on signal realizations. Receivers can accept the contract to process the persuasion signals and pay the transfer, or they can decline it and maintain their prior beliefs. The mechanism exploits confirmation bias, which arises from receivers' heterogeneous beliefs, to create their heterogeneous incentives to accept the contract. We apply the general theorem to the market with a monopolistic seller and heterogeneous consumers who are uncertain about the product's value. This application demonstrates an important managerial implication for the optimal pricing of a product trial or demo, which was largely overlooked previously.
(Presented at 2023 Hong Kong Economic Association Biennial Conference, HKU)
In a Bayesian persuasion game, when a Sender realizes he cannot immediately convince an inattentive Receiver to make a desirable decision immediately, he emphasizes persuading the Receiver to be persuadable in his next attempt. We show that the Sender may favor and choose sequential persuasions over static persuasions when the Receiver is rationally inattentive. The Sender designs experiments to increase the likelihood of a bad signal occurring in the current stage but make it less bad when it occurs to accommodate for the subsequent persuasion attempt. This tactic decreases the success rate of the current persuasion but creates or increases the Receiver's willingness to be persuaded again if the current persuasion attempt fails. If the Sender is permitted more persuasion attempts, the experiments he conducts during each attempt will transmit less information and lead to “piecemeal” information disclosure.
For conspicuous consumption to occur, certain price levels must exclude low-income consumers while retaining as many high-income consumers as possible to create exclusivity. This phenomenon necessitates the income effect if consumers with different incomes share similar preferences for a status good. However, as a result of the income effect, the direct value determined by the product quality and the conspicuous value determined by exclusivity may act as substitutes for consumers. Therefore, when a product becomes a status good, its quality may decrease. Consumers who purchase a good solely for its direct value may incur a loss, and the market may experience a decrease in efficiency. Moreover, the quality decline of a status good reduces the effectiveness of price as a signal of product quality, whereas a high price indicates only high quality if the good is an ordinary good under the same conditions.
Strategy of Information Disclosure, Receiver Heterogeneity and Mechanism Design
The Sender who decides how information is disclosed in a game can benefit by selling information, if additional information helps the Receivers make decisions, and by garbling the information, when these decisions are relevant to her payoff. These two objectives are usually not perfectly aligned, but they coexist, especially when Receivers have heterogeneous prior beliefs as private information, which motivates the Sender to design screening mechanisms. We investigate the optimal information disclosure strategy and its determinants in a bilateral trading game where the Sender has dual objectives and the Receivers have heterogeneous prior beliefs. We show that the screening mechanism is effective only when the Sender's primary objective is to sell information to some Receivers while still needing to persuade others. In other cases, the Sender either fully discloses the information or employs a non-discriminatory information-garbling strategy to persuade all Receivers.
Research in Progress
Buying to Qualify: Audience and Exclusivity in Conspicuous Consumption
Advertising Experience Goods