On the Informed Seller Problem: Optimal Information Disclosure

We consider a revenue maximizing seller who, before proposing a mechanism to sell her object(s), observes a vector of signals correlated with buyers’ valuations. Each buyer knows only the signal that the seller observes about him but not the signals she observes about other buyers. The seller therefore has information about buyers’ valuations that is not common knowledge. How will the seller disclose this information if her goal is to maximize revenue? We analyze the scenario where the seller chooses how to disclose her information and then chooses a revenue maximizing mechanism. We allow for very general disclosure policies, that can be random, public, private, or any mixture of these possibilities. Through the disclosure of information privately the seller can create correlation in buyers’ types, which then consist of valuations plus beliefs. For the standard independent private values model we show that information revelation is irrelevant: irrespective of the disclosure policy an optimal mechanism for this informed seller generates expected revenue that is equal to her maximal revenue under full information disclosure. We also consider a more general allocation environment, allowing for interdependent, for common values, and for multiple items. There disclosure policies do matter and we show that the best the seller can do is to release no information at all. This result is opposite from the celebrated linkage principle.