Question

Soft selling occurs when a buyer is skeptical of the usefulness of a product and the

seller offers to set a price that depends on realized value. For example, suppose you’re trying to sell a company a new accounting system that will reduce costs by 10%. Instead of naming a price, you offer to give them the product in exchange for 50% of their cost savings. Describe the information asymmetry, the adverse selection problem, and why soft selling is a successful signal.

How does the adverse selection problem arise in the credit card market? How do the credit card companies reduce the adverse selection problem that they face? To what complaint does this give rise?

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