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Information in Cournot: Signaling with incomplete control

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  • Daher, Wassim
  • Mirman, Leonard J.
  • Santugini, Marc

Abstract

We embed signaling in the classical Cournot model in which several firms sell a homogeneous good. The quality is known to all the firms, but only to some buyers. The quantity-setting firms can manipulate the price to signal quality. Because there is only one price in a market for a homogeneous good, each firm incompletely controls the price-signal through the quantity decision. We characterize the unique signaling Cournot equilibrium in which the price signals quality to the uninformed buyers. We then compare the signaling Cournot equilibrium with the full-information Cournot equilibrium. Signaling is shown to increase the equilibrium price. Moreover, under certain conditions regarding the composition of buyers, the number of firms, and the distribution of costs across firms, the effects of signaling and market externality cancel each other. In other words, the profits under signaling Cournot equal the profits of a cartel in a full-information environment.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 30 (2012)
Issue (Month): 4 ()
Pages: 361-370

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Handle: RePEc:eee:indorg:v:30:y:2012:i:4:p:361-370

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Web page: http://www.elsevier.com/locate/inca/505551

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Keywords: Cournot; Homogeneous good; Learning; Quality; Signaling;

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References

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Cited by:
  1. Mirman, Leonard J. & Salgueiro, Egas M. & Santugini, Marc, 2014. "Noisy signaling in monopoly," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 504-511.
  2. Catherine Gendron-Saulnier & Marc Santugini, 2013. "The Informational Benefit of Being Discriminated," Cahiers de recherche 13-02, HEC Montréal, Institut d'économie appliquée.

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