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Strategic Pricing, Signalling, and Costly Information Acquisition

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  • Helmut Bester

    ()

  • Klaus Ritzberger

    ()

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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Keywords: quality uncertainty; price signalling; information acquisition;

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References

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  1. Bester, H., 1991. "Bargaining V.S. Price Competition in a Market with Quality Uncertainty," Papers 9113, Tilburg - Center for Economic Research.
  2. 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.
  3. 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.
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  19. Border, Kim C & Sobel, Joel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 525-40, October.
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Cited by:
  1. Thomas Liebi, 2003. "The Demand for Tests," Diskussionsschriften dp0307, Universitaet Bern, Departement Volkswirtschaft.
  2. Silvia Martínez-Gorricho, 2012. "Beneficial consumer fraud," Working Papers. Serie AD 2012-13, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Adriani, Fabrizio & Deidda, Luca G., 2009. "Price signaling and the strategic benefits of price rigidities," Games and Economic Behavior, Elsevier, vol. 67(2), pages 335-350, November.
  4. Mark Voorneveld & Jörgen W. Weibull, 2011. "A Scent of Lemon—Seller Meets Buyer with a Noisy Quality Observation," Games, MDPI, Open Access Journal, vol. 2(1), pages 163-186, March.
  5. Bester, Helmut & Demuth, Juri, 2011. "Signalling rivalry and quality uncertainty in a duopoly," Discussion Papers 2011/20, Free University Berlin, School of Business & Economics.

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