Yihu Hou

Job Market Paper

Sequential Screening via Trial Versions [latest version] [slides]

Quantity of information is an essential screening tool yet in reality we see a stark dichotomy: some firms offer various trial sizes while others offer a homogeneous one. To find out why this dichotomy occurs, I model the scenario when a firm can use trials to persuade consumers, who do not fully know their preference, into experimenting and subsequently purchasing the full upgrade. The model differs from traditional ones in that learning is only possible through the consumption of the sample, which limits the information provision and rent extraction of the principal. I find that the firm's information provision depends on the way in which consumers obtain information from consuming the sample. The optimal screening mechanism with bad news belief updating involves full bunching (i.e. a single trial version), while good news belief updating, on the other hand, leads to full discrimination (i.e. a rich trial menu). In addition, the paper complements the traditional method in dynamic screening by providing a full characterization of the solution when local incentive condition does not extend globally and when the ``double-deviation'' i.e., off-path misreporting occurs. I show in general, these requirements lead to more bunching.

Working Paper

Price Signaling and Recommender's Ranking Mechanism

Consumers sometimes evaluate a product based on its price. Good products often refrain from reducing their prices, which grants an advantage to inferior products in price competition. This paper introduces an informed recommender and investigates its potential to mitigate the occurrence of unfavorable equilibria. I find that if the recommender always provides recommendations, even if these recommendations possess significant credibility, consumers will selectively disregard such recommendations and instead evaluate the goods primarily based on their price. To address this issue, the recommender must make commitments to not recommend any products occasionally, even if the probability of doing so is infinitesimally small. Through this commitment, consumers will no longer rely solely on price and instead pay greater attention to the recommender's suggestions. Consequently, the probability of selling high-quality products increases, leading to enhanced social welfare.

Precision or Accuracy? How Information Entropy Affects Coordination

This paper investigates the impact of information entropy on coordination. I find that to achieve better coordination among different players, it is beneficial to provide them with precise but not accurate information. This involves offering information with a refined type space, such as increased significant figures or a highly detailed classification while allowing for a relatively large margin of error. Despite the seeming redundancy of precise information reporting when accompanied by large errors, it plays a crucial role in refining the state space, augmenting entropy, and ultimately improving coordination.