Essays on Theories of Information Economics and Industrial Organization

Abstract

This dissertation includes three essays considering microeconomic theories on information design and industrial organization. The essay in Chapter 2 considers optimal information structures in restricting the information of the Sender in a cheap talk game. Monotone partitional information structures might not obtain optimality, and some signals that the Sender receives are required to be partially garbled together in order to relax the Sender's incentive constraints. We provide a partial characterization of the optimal structure and show that it is from a class of structures that are more general than monotone partitional, but only exhibit certain local nonmonotonicities of the information structure. Our analysis builds on the graphical characterization of feasible information structures in Gentzkow and Kamenica (2016) and shows that this methodology can be used in complex information design problems with large state and action spaces. In an extension we use the same approach to solve problems with capacity constraints on communication.The essay in Chapter 3 studies how an information designer can influence experimentation with a new product of unknown quality. The designer commits to a history-contingent recommendation policy. A sequence of consumers arrives, not knowing their positions in the sequence or past outcomes, observing only the designer's recommendations. The designer learns from a noisy signal of quality generated from each purchase. When the designer maximizes expected consumer surplus, the first-best level of experimentation is achievable under general conditions. With alternative objectives -- such as internalizing externalities on non-consumers or maximizing profit -- the first best may fail, and at least one consumer incentive constraint must bind. We characterize the optimal second-best mechanisms under perfect good news and perfect bad news. With perfect good news, the designer can increase or decrease experimentation relative to the consumer-welfare benchmark until the purchase or no-purchase incentive constraint binds, and optimal policies may involve mixing before stopping. With perfect bad news, a designer with weaker experimentation incentives cannot do better than delaying experimentation, while a designer with stronger experimentation incentives cannot extend experimentation but may increase adoption by occasionally recommending a product already revealed to be of low quality.The essay in Chapter 4 investigates dynamic duopoly competition in quality and price. The firms invest in product quality and generate endogenous vertical differentiation. They compete in a Hotelling market, which exhibits exogenous horizontal differentiation. Depending on the cost of quality investment, firms either sustain low quality levels through upgrading deterrence or engage in fierce direct competition. These two modes of competition generate non-monotonic patterns in upgrading frequency and investment efficiency. I also show that horizontal and vertical differentiation interact in cost-dependent ways: when upgrading is cheap, they are substitutes -- greater horizontal differentiation strengthens market power, raises profits, and intensifies quality rivalry while keeping qualities balanced. When upgrading is expensive, they are complements -- greater horizontal differentiation makes leadership less profitable, softening quality rivalry and sustaining vertical gaps. My results provide a parsimonious framework for non-monotonic investment incentives and highlight how horizontal and vertical differentiation jointly shape the dynamics of competition and welfare in markets.