Cheap Talk Advertising in Auctions

This paper explores how a seller should transmit product information to bidders with horizontally differentiated preferences. Under cheap-talk, we show that, in an informative equilibrium, the seller provides less precise information for more popular product attributes. Second, for any given partition degree, a partitional equilibrium always exists if the number of bidders, $n$, is sufficiently large. Third, the seller's optimal disclosure policy displays a complementary relationship between $n$ and the optimal amount of information disclosed. As a comparison, when a seller commits to truthful disclosure, we show that the complementarity result still holds, yet the seller now fully reveals the popular product attributes in the centre of a Hotelling line. Finally, we provide three applications of our results to monopoly advertising under a uniform price, political campaign, and school grading