Controlling Information to Influence Consumer Beliefs

Access to product information changes a consumer’s initial belief about the product’s value in ways that are often unobservable to the firm. In such situations, how much information does the firm want the consumer to have access to? This paper expands on Lewis and Sappington’s (1994) model of information supply between a seller and a buyer using the information environment developed by Kamenica and Gentzkow (2011) to answer this question. Unlike the results in Lewis and Sappington (1994) and Johnson and Myatt (2006) which state that a monopolist prefers either full information or no information, partial information revelation is generally optimal for a monopolist facing a rational Bayesian consumer. The monopolist allows the consumer to learn whether or not her valuation is higher than the outside option but no more.