Does costly persuasion signal quality?

Carroni, Elias;Ferrari, Luca;Pignataro, Giuseppe

2025-01-01

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Abstract

We study a buyer-seller setting where the seller’s quality is private information and the buyer’s reservation value depends on an unknown state. The seller can persuade the buyer by designing a costly Bayesian experiment. We show that a high-quality seller provides more precise information and is willing to incur higher costs, as this enables selling at higher prices. When information is costless, separation requires price distortion. By contrast, when experimentation is costly, the high-quality seller deters mimicking through a more informative experiment and sets prices optimally given the experiment design, thereby reducing the need for price distortion.