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Pricing and signaling with frictions

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  • Delacroix, Alain
  • Shi, Shouyong

Abstract

We study a market where each seller chooses the quality and price of goods and the number of selling sites. Observing sellersʼ choices of prices and sites, but not quality, buyers choose which site to visit. A sellerʼs choices of prices can direct buyersʼ search and signal quality. A unique equilibrium exists and is separating. When the quality differential is large, the equilibrium implements the efficient allocation with public information. Otherwise, the quality of goods and/or the number of sites created is inefficient, due to a conflict between the search-directing and signaling roles of prices.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 4 ()
Pages: 1301-1332

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:4:p:1301-1332

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Search; Signaling; Pricing; Efficiency; Bargaining;

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References

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  1. Peters, Michael & Severinov, Sergei, 1997. "Competition among Sellers Who Offer Auctions Instead of Prices," Journal of Economic Theory, Elsevier, vol. 75(1), pages 141-179, July.
  2. Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
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  5. Jean Guillaume Forand, 2012. "Competing Through Information Provision," Working Papers 1201, University of Waterloo, Department of Economics, revised Apr 2012.
  6. Francisco M. Gonzalez & Shouyong Shi, 2010. "An Equilibrium Theory of Learning, Search, and Wages," Econometrica, Econometric Society, vol. 78(2), pages 509-537, 03.
  7. Shouyong Shi, 2009. "Directed Search for Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 77(2), pages 561-584, 03.
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  9. Michelacci, Claudio & Suarez, Javier, 2002. "Incomplete Wage Posting," CEPR Discussion Papers 3658, C.E.P.R. Discussion Papers.
  10. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  11. Peters, Michael, 1984. "Bertrand Equilibrium with Capacity Constraints and Restricted Mobility," Econometrica, Econometric Society, vol. 52(5), pages 1117-27, September.
  12. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 468 - 510.
  13. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  14. Robert Shimer & Randall Wright & Veronica Guerrieri, 2009. "Adverse Selection in Competitive Search Equilibrium," 2009 Meeting Papers 139, Society for Economic Dynamics.
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  17. Veronica Guerrieri, 2008. "Inefficient Unemployment Dynamics under Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 667-708, 08.
  18. Wolinsky, Asher, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 647-58, October.
  19. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle, Second Version," PIER Working Paper Archive 09-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Feb 2009.
  20. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
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Citations

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Cited by:
  1. Albrecht, James & Gautier, Pieter & Vroman, Susan, 2009. "Directed Search in the Housing Market," IZA Discussion Papers 4671, Institute for the Study of Labor (IZA).
  2. Veronica Guerrieri & Robert Shimer & Randall Wright, 2009. "Adverse Selection in Competitive Search Equilibrium," NBER Working Papers 14915, National Bureau of Economic Research, Inc.
  3. Derek G. Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," Working Papers 1289, Queen's University, Department of Economics.
  4. Benjamin Lester & Ludo Visschers & Ronald Wolthoff, 2013. "Competing with Asking Prices," Working Papers tecipa-471, University of Toronto, Department of Economics.
  5. Jean Guillaume Forand, 2007. "Competing Through Information Provision," 2007 Meeting Papers 661, Society for Economic Dynamics.
  6. Benjamin Lester (Federal Reserve Bank of Philadelphia), Ludo Visschers (The University of Edinburgh & Universidad Carlos III, Madrid), Ronald Wolthoff (University of Toronto), 2014. "Competing with Asking Prices," ESE Discussion Papers 243, Edinburgh School of Economics, University of Edinburgh.
  7. Jean Guillaume Forand & Vikram Maheshri, 2013. "(De)Regulation and Market Thickness," Working Papers 2013-252-38, Department of Economics, University of Houston.
  8. Enchuan Shao, 2013. "The Threat of Counterfeiting in Competitive Search Equilibrium," Working Papers 13-22, Bank of Canada.
  9. Jonathan Halket & Matteo Pignatti, 2012. "Housing tenure choices with private information," Economics Discussion Papers 717, University of Essex, Department of Economics.

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