Elena Istomina

Work in Progress

Abstract: A seller produces goods of two qualities: high and low. While the seller cannot observe individual product quality, consumers can, and they only purchase high-quality goods at higher prices. The seller becomes more pessimistic about the unsold inventory and reallocates it to a discount store. The key insight is that improving product sorting across stores requires attracting more consumers to a high-priced location so that fewer high-quality goods remain unsold and become available at a discount. This greater sorting enables the seller to charge a higher premium for high-quality goods, but it comes at the cost of reduced sales volume due to fewer consumers purchasing at higher prices. I extend this equilibrium relationship between sales volume, pricing, and product sorting to a model with a continuum of stores and provide additional insights into the seller's optimal strategy.

Abstract: This paper examines a monopolist who designs a menu of prices and quality levels for customers while incurring costs to understand the customer's requests. I show that the monopolist's problem simplifies to gathering information about the buyer's virtual type when communication precision costs are proportional to entropy reduction or when the buyer's type is binary. This friction introduces an additional market distortion, adding to the well-known problem of quality underprovision for low types. From a utilitarian perspective, the seller overinvests in communication precision to extract a larger surplus from the consumer.

Abstract: This paper models an uninformed seller negotiating with informed buyers when completing the transaction requires time and effort. The buyer exerts costly effort to expedite the deal, while the seller learns about the buyer's enthusiasm and adjusts her pricing over time. Anticipating this, the buyer strategically speeds up or slows down the process. I show that the seller's beliefs about the buyer and the final price exhibit tipping points: the seller becomes more pessimistic over time as higher buyer types exert more effort, leading to abrupt shifts in beliefs and market activity. Under some conditions, the market comes to a freeze right before a burst of activity.