Template-Type: ReDIF-Paper 1.0
Title: Designing Vertical Differentiation with Information
Author-Name: Christoph Carnehl
Author-Email: christoph.carnehl@unibocconi.it
Author-Name: Anton Sobolev
Author-Email: anton.sobolev@uni-mannheim.de
Author-Name: Konrad Stahl
Author-Email: konrad.stahl@uni-mannheim.de
Author-Name: André Stenzel
Author-Email: astenzel@bankofcanada.ca

Classification-JEL: D43, D82, L13, L15.
Keywords: Information Design, Vertical Product Differentiation, Quality Rankings, Competition

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.

Note: 
Length: 40
Creation-Date: 2025-08
Revision-Date: 2026-02
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp700
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2025_700v2