Buyer-Initiated versus Seller-Initiated Information Revelation

In many selling situations, the firm can choose between a selling format in which the buyer determines which information about the product will be revealed and one in which the seller makes this determination. We model this choice of information revelation format and its interaction with product quality. In a monopoly with exogenous quality, if the firm offers a high quality product it prefers a buyer-initiated format. This choice helps the firm to signal its type perfectly. When product quality is endogenous, we find that high-quality products are again associated with buyer-initiated formats. Moreover, when the cost of a seller-initiated format decreases, firms switch to this format which is consistent with lower-quality products. As a result, product quality declines as the cost of communication declines. In a duopoly, as the cost of a buyer initiated format decreases, both firms offer higher quality products via a buyer initiated format. The incentive to undercut the rival's price is mitigated by the possibility of lower demand. This results in a softening of price competition, an increase in profits, and higher consumer surplus.