
Uncertainty and Imperfect Information in Markets
347
which implies
(0)
q
: if the buyer never learns, then the seller will cheat him by pro-
viding minimal quality. Finally, observe
The rightmost term is positive for T=1. For
, the rightmost term is the difference
between the slope of the chord between (δ, δ
T
) and (1, 1
T
) and the derivative of δ
T
at δ.
Because the power function is a convex function for powers greater than 1, the slope of
the chord must exceed the derivative; that is, the rightmost term is positive. It follows,
therefore, that ∂R/∂λ> 0, which in turn entails that the quicker the buyer is at learning
true quality, the greater ...