Misspecified Model in Monopoly Pricing

When a consumer navigates the market in search of the ideal product, they rely heavily on the selective information sellers signal. The seller can employ redaction strategies to obscure the absence of certain features sought by consumers. This paper explores the implications of these redaction strategies in a market characterized by non-rational buyer expectations. This study delves into the strategic decision-making of sellers: how can they abuse the non-rational expectation to maximize profit? It’s imperative to note that such strategic complexities arise due to consumers not being entirely privy to perfect information, not being precise when judging suppliers’ strategy, and coarsely analogizing the behavior of the supplier, even though they are otherwise rational. A detailed model supporting this analysis, along with an overview of relevant literature, will be discussed in subsequent sections.