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Introductory Price as a Signal of Cost in a Model of Repeat Business

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  • Bagwell, Kyle

Abstract

This paper analyzes a bargaining model with incomplete information in which the time between offers is an endogenous stra tegic variable. It finds equilibria involving a delay to agreement th at is attributable to the use of strategic time delay by bargainers t o signal their relative strength. Under some specifications of the pa rameters, delay is present in the unique sequential equilibrium whose beliefs satisfy one intuitive restriction. This delay does not vanis h as the minimal time between offers becomes small. Copyright 1987 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 54 (1987)
Issue (Month): 3 (July)
Pages: 365-84

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Handle: RePEc:bla:restud:v:54:y:1987:i:3:p:365-84

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References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. David Kreps & Robert Wilson, 1998. "Sequential Equilibria," Levine's Working Paper Archive 237, David K. Levine.
  2. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Kyle Bagwell & Garey Ramey, 1988. "Advertising and Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 59-71, Spring.
  4. Bagwell, Kyle, 1987. "Introductory Price as a Signal of Cost in a Model of Repeat Business," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 365-84, July.
  5. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
  6. Sobel, Joel, 1984. "The Timing of Sales," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 353-68, July.
  7. Conlisk, John & Gerstner, Eitan & Sobel, Joel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 489-505, August.
  8. Irvine, F Owen, Jr, 1981. "An Optimal Middleman Firm Price Adjustment Policy: The "Short-Run Inventory-Based Pricing Policy."," Economic Inquiry, Western Economic Association International, vol. 19(2), pages 245-69, April.
  9. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  10. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  11. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
  12. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  13. Bagwell, Kyle, 1990. "Informational product differentiation as a barrier to entry," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 207-223, June.
  14. Salop, Steven, 1977. "The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 393-406, October.
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Citations

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Cited by:
  1. Bagwell, Kyle & Ramey, Garey, 1994. "Advertising and Coordination," Review of Economic Studies, Wiley Blackwell, vol. 61(1), pages 153-72, January.
  2. Kyle Bagwell & Garey Ramey, 1987. "Advertising and Limit Pricing," Discussion Papers 729, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Kyle Bagwell & Michael Riordan, 1986. "Equilibrium Price Dynamics for an Experience Good," Discussion Papers 705, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Srihari Govindan & Robert Wilson, 2009. "On Forward Induction," Econometrica, Econometric Society, vol. 77(1), pages 1-28, 01.
  5. Vanessa von Schlippenbach, 2008. "Complementarities, Below-Cost Pricing, and Welfare Losses," Discussion Papers of DIW Berlin 788, DIW Berlin, German Institute for Economic Research.
  6. Kyle Bagwell, 1993. "Dynamic Retail Price and Investment Competition," Discussion Papers 1115, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Clements, Matthew T., 2011. "Low quality as a signal of high quality," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 5(5), pages 1-22.
  8. Mariano Tommasi, 1992. "Intertemporal Pricing in Search Markets, Customer Markets and Price Rigidity," UCLA Economics Working Papers 681, UCLA Department of Economics.
  9. Kyle Bagwell, 1987. "Introductory Price as a Signal of Cost in a Model of Repeat Business," Discussion Papers 722, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Kyle Bagwell & Michael Peters, 1988. "Dynamic Monopoly Power When Search is Costly," Discussion Papers 772, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Peter E. Rossi & Judith A. Chevalier & Anil K. Kashyap, 2002. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," Yale School of Management Working Papers ysm291, Yale School of Management.
  12. Govindan, Srihari & Wilson, Robert B., 2008. "Decision-Theoretic Forward Induction," Research Papers 1986, Stanford University, Graduate School of Business.
  13. Kyle Bagwell & Garey Ramey, 1988. "Advertising, Coordination, and Signaling," Discussion Papers 787, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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