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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

Related research

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

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References

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  1. Robert Shimer & Randall Wright & Veronica Guerrieri, 2009. "Adverse Selection in Competitive Search Equilibrium," 2009 Meeting Papers 139, Society for Economic Dynamics.
  2. 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.
  3. 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.
  4. Forand, Jean Guillaume, 2013. "Competing through information provision," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 438-451.
  5. Francisco M. Gonzalez & Shouyong Shi, 2009. "An Equilibrium Theory of Learning, Search and Wages," Working Papers tecipa-384, University of Toronto, Department of Economics.
  6. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
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  8. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  9. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle," Working Papers tecipa-327, University of Toronto, Department of Economics.
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  17. Claudio Michelacci & Javier Suarez, 2006. "Incomplete Wage Posting," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1098-1123, December.
  18. Guido Menzio, 2007. "A Theory of Partially Directed Search," PIER Working Paper Archive 09-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  19. 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.
  20. Shouyong Shi, 2009. "Directed Search for Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 77(2), pages 561-584, 03.
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Citations

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Cited by:
  1. Jean Guillaume Forand & Vikram Maheshri, 2013. "(De)Regulation and Market Thickness," Working Papers 2013-252-38, Department of Economics, University of Houston.
  2. Ronald Wolthoff & Lodewijk Visschers & Benjamin Lester, 2012. "Asking Prices and Inspection Goods," 2012 Meeting Papers 792, Society for Economic Dynamics.
  3. Lester, Benjamin R. & Visschers, Ludo & Wolthoff, Ronald P., 2013. "Competing with Asking Prices," IZA Discussion Papers 7163, Institute for the Study of Labor (IZA).
  4. James Albrecht & Pieter A. Gautier & Susan Vroman, 2010. "Directed Search in the Housing Market," Tinbergen Institute Discussion Papers 10-005/3, Tinbergen Institute.
  5. Jonathan Halket & Matteo Pignatti, 2012. "Housing tenure choices with private information," Economics Discussion Papers 717, University of Essex, Department of Economics.
  6. Veronica Guerrieri & Robert Shimer & Randall Wright, 2009. "Adverse Selection in Competitive Search Equilibrium," NBER Working Papers 14915, National Bureau of Economic Research, Inc.
  7. Derek G. Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," Working Papers 1289, Queen's University, Department of Economics.
  8. Jean Guillaume Forand, 2012. "Competing Through Information Provision," Working Papers 1201, University of Waterloo, Department of Economics, revised Apr 2012.
  9. Enchuan Shao, 2013. "The Threat of Counterfeiting in Competitive Search Equilibrium," Working Papers 13-22, Bank of Canada.

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