Handbook of Media Economics, vol 1A

distribution of σ: so the expected willingness to pay of the marginal consumer is increas-

ing in α. Conversely, for a sale probability above 1/2, the marginal consumer’s expected

willingness to pay is decreasing in α. Thus in the figure, α

0

< α

00

. This means that the

better informed is the consumer, the steeper is the inverse demand curve. In particular,

if the consumer has no information, α ¼0, then the inverse demand is flat at willingness

to pay 1/2.

If the firm can choose any α 2 0, 1½, it chooses either α ¼0orα ¼1. Suppose, on the

contrary, that the firm chooses α 2 0, 1ðÞ. If it sells with probability q < 1=2, then if it

makes the demand curve ...