Monopoly With Endogenous Information Structure

This article tries to modify the classical Maskin-Riley model of monopoly with incomplete information by the assumption of endogenous information structure. Here, the endogenous information structure means a situation where a consumer initially is uninformed, but can acquire the information of his private preference at a cost before the decision of bargaining and purchase from the monopolist. Under this situation, the monopolist will choose the way to exert price discrimination and the consumer will choose to gather information or not. It can be shown that the strategy of price discrimination by the monopolist and the optimal decision of the consumer, depend on the trade-off between the cost of information gathering, which is called the procurement cost, and the expected information value ex ante.In the deterministic cases, we investigate the endogenous ignorance and endogenous adverse selection, which are two extreme cases. The first condition means that the consumer's optimal behavior is choosing to be uninformed and the monopolist can exert price discrimination efficiently. The second one means that the consumer should choose to be informed deterministically and the result of monopoly is similar with the analysis of Maskin-Riley model. In the stochastic cases which is apparently different from the result characterized by Maskin and Riley. Following the standard methods in Incentive Theory, we discuss the separating equilibrium and the bundling equilibrium respectively. We provide the optimal solution to the system of two-person game and the conditions which can guarantee the existence of these equilibriums.Finally, by comparison, this paper shows the relationship and difference between our extended framework and Maskin-Riley model , and provides some new ideas for further extension.