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Seoul Journal of Economics - Vol. 35 , No. 3

[ Article ]
Seoul Journal of Economics - Vol. 34, No. 3, pp. 365-392
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2021
Received 18 Feb 2021 Revised 18 Jun 2021 Accepted 24 Jun 2021

Cheap-Talk Disclosure of Negative Information and Risk-Averse Buyers
Dmitry Shapiro ; Seung Huh
Dmitry Shapiro, Department of Economics and Institute of Economic Research, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 08826, South Korea, Tel: 82-2-880-2287 (
Seung Huh, Corresponding Author. College of Business Administration, Incheon National University, 119 Academy-ro, Yeonsu-Gu, Incheon 22012, South Korea, Tel: 82-32-835-8719 (

Funding Information ▼

JEL Classification: D21, D81, L15, M31


In this paper, we study the incentives of low-quality sellers to separate them from high-quality sellers. We consider a framework with asymmetric quality information where the only way to communicate quality is via cheap-talk messages. In this framework, any separating strategy pursued by high-quality sellers can be imitated costlessly by low-quality sellers. We show that in the duopoly setting with risk-averse buyers, equilibria exist, where low-quality sellers voluntarily disclose negative information about their products. If the seller is a monopolist or buyers are risk-neutral, such equilibria do not exist.

Keywords: Negative information, Risk aversion, Cheap talk, Product differentiation


This work was supported by the New Faculty Startup Fund of Seoul National University, Creative-Pioneering Researchers Program of Seoul National University and the fund from Incheon National University’s Research Grant (2020).

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