Sequential Information Selling: Perfect Price Discrimination and the Role of Encryption

Manuel Förster and Fynn Louis Närmann
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Manuel Förster: Center for Mathematical Economics, Bielefeld University
Fynn Louis Närmann: Center for Mathematical Economics, Bielefeld University

No 749, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University

Abstract: We study a dynamic game in which a monopolistic seller sequentially discloses information about a binary state to a consumer through priced experiments. The consumer privately observes a binary signal which influences her willingness to pay for information. We show that if buyer types favor different actions but their willingness to pay for a state-revealing test is sufficiently close, then the seller can commit to a sequence of priced experiments that extracts the entire surplus of both consumer types simultaneously. The optimal sequence of experiments is such that the high-valuation type assigns a higher probability to outcomes that trigger further information acquisition, thus creating a difference in expected costs. As a key element of the construction, we introduce an ‘encryption protocol’ under which the consumer faces a stopping problem. We then characterize situations in which the seller strictly benefits from a dynamic selling strategy when perfect price discrimination is not feasible. Finally, we illustrate our framework in the context of medical diagnostic testing, showing that a free test followed by a state-revealing test is often sufficient to improve revenue in comparison with a static approach.

Keywords: Information design; dynamic mechanism; selling information; encryption; price discrimination (search for similar items in EconPapers)
Pages: 69
Date: 2025-07-03
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