Designing Vertical Differentiation with Information

Christoph Carnehl (), Anton Sobolev (), Konrad Stahl () and André Stenzel ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We study information design in a vertically differentiated market. A third party publicly discloses information about the product qualities of two competing firms. More precise information improves consumer matching but increases perceived differentiation, enabling firms to raise prices. Disclosing the product ranking alone suffices to maximize industry profits in a fully covered market. Consumer surplus, however, is maximized by a rank-preserving policy that withholds any information that overturns the prior ranking, as gains from price competition outweigh losses from allocative inefficiency. The conflict between profit- and consumer-optimal policies persists in settings with endogenous participation and nonlinear or asymmetric costs.

Keywords: Information Design; Vertical Product Differentiation; Quality Rankings; Competition (search for similar items in EconPapers)
JEL-codes: D43 D82 L13 L15 (search for similar items in EconPapers)
Pages: 40
Date: 2025-08, Revised 2026-02
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.crctr224.de/research/discussion-papers/archive/dp700 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2025_700v2

Access Statistics for this paper

More papers in CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany Kaiserstr. 1, 53113 Bonn , Germany.
Bibliographic data for series maintained by CRC Office ().