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Strategic Pricing, Signalling, and Costly Information Acquisition

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Author Info
Helmut Bester ()
Klaus Ritzberger ()

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Abstract

Consider a market where an informed monopolist sets the price for a good or as set with a value unknown to potential buyers. Upon observing the price, buyers may pay some cost for information about the value before deciding on purchases. To restrict buyer beliefs we generalize the idea of the Cho--Kreps ``intuitive criterion''. Then there is no separating equilibrium with fully revealing prices. Yet, as the cost of information acquisition becomes small, the equilibrium approaches the full information outcome and prices become perfectly revealing.

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Paper provided by Departmental Working Papers in its series Papers with number 008.

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Handle: RePEc:bef:lsbest:008

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Related research
Keywords: quality uncertainty; price signalling; information acquisition;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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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.:
  1. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-39, March. [Downloadable!] (restricted)
    Other versions:
  2. Cooper, Russell & Ross, Thomas W., 1985. "Monopoly provision of product quality with uninformed buyers," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 439-449, December. [Downloadable!] (restricted)
    Other versions:
  3. Border, Kim C & Sobel, Joel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Blackwell Publishing, vol. 54(4), pages 525-40, October. [Downloadable!] (restricted)
  4. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August. [Downloadable!] (restricted)
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  5. Wolinsky, Asher, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Blackwell Publishing, vol. 50(4), pages 647-58, October. [Downloadable!] (restricted)
  6. Jones, Philip & Hudson, John, 1996. "Signalling product quality: When is price relevant?," Journal of Economic Behavior & Organization, Elsevier, vol. 30(2), pages 257-266, August. [Downloadable!] (restricted)
  7. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  8. 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. [Downloadable!] (restricted)
  9. Cooper, Russell & Ross, Thomas W, 1984. "Prices, Product Qualities and Asymmetric Information: The Competitive Case," Review of Economic Studies, Blackwell Publishing, vol. 51(2), pages 197-207, April. [Downloadable!] (restricted)
  10. Bester, H., 1991. "Bargaining V.S. Price Competition in a Market with Quality Uncertainty," Papers 9113, Tilburg - Center for Economic Research.
  11. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 241-276, August. [Downloadable!] (restricted)
  12. Verrecchia, Robert E, 1982. "Information Acquisition in a Noisy Rational Expectations Economy," Econometrica, Econometric Society, vol. 50(6), pages 1415-30, November. [Downloadable!] (restricted)
  13. Riordan, Michael H, 1986. "Monopolistic Competition with Experience Goods," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 265-79, May. [Downloadable!] (restricted)
  14. Judd, Kenneth L & Riordan, Michael H, 1994. "Price and Quality in a New Product Monopoly," Review of Economic Studies, Blackwell Publishing, vol. 61(4), pages 773-89, October. [Downloadable!] (restricted)
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  15. Grossman, Sanford J, 1981. "An Introduction to the Theory of Rational Expectations under Asymmetric Information," Review of Economic Studies, Blackwell Publishing, vol. 48(4), pages 541-59, October. [Downloadable!] (restricted)
  16. Sanford Grossman, 1978. "Further results on the informational efficiency of competitive stock markets," Special Studies Papers 114, Board of Governors of the Federal Reserve System (U.S.).
  17. Ellingsen, Tore, 1997. "Price signals quality: The case of perfectly inelastic demand," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 43-61, November. [Downloadable!] (restricted)
  18. Hellwig, Martin F., 1982. "Rational expectations equilibrium with conditioning on past prices: A mean-variance example," Journal of Economic Theory, Elsevier, vol. 26(2), pages 279-312, April. [Downloadable!] (restricted)
  19. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Thomas Liebi, 2003. "The Demand for Tests," Diskussionsschriften dp0307, Universitaet Bern, Departement Volkswirtschaft. [Downloadable!]
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