Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Monopolist’s Blues

Contents:

Author Info

  • F. Adriani
  • LG. Deidda

Abstract

We consider the problem of trade between a price setting party who has private information about the quality of a good and a price taker who may also have private information. We restrict attention to the case in which, under full information, it is efficient to trade only a subset of all qualities. In particular, we assume that trading a low (high) quality is inefficient when the seller (buyer) sets the price. We show that there is a unique equilibrium outcome passing Cho and Kreps (1987) “Never a Weak Best Response”. The refined outcome is always characterized by no trade, although trade would be mutually beneficial in some state of nature. This occurs - 1. Even if the price taker has more precise information than the price setting party, and 2. Even when the information received by both parties is almost perfect. Both results imply that there are inefficiencies due to price setting that are not present in standard markets with adverse selection. We find that the price setting party can always increase her profits through ex-ante delegation of the price choice to an uninformed third party. We discuss applications to professional bodies and the market for unskilled labor.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://crenos.unica.it/crenos/node/243
Download Restriction: no

File URL: http://crenos.unica.it/crenos/sites/all/modules/pubdlcnt/pubdlcnt.php?file=http://crenos.unica.it/crenos/sites/default/files/wp/06-11.pdf&nid=243
Download Restriction: no

Bibliographic Info

Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 200611.

as in new window
Length:
Date of creation: 2006
Date of revision:
Handle: RePEc:cns:cnscwp:200611

Contact details of provider:
Postal: Via S. Giorgio 12, I-09124 Cagliari
Phone: +70/6756406
Fax: +70/6756402
Email:
Web page: http://www.crenos.unica.it/
More information through EDIRC

Related research

Keywords: market for lemons; signaling; two-sided asymmetric information; professional bodies; trade unions;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Persson, Torsten & Tabellini, Guido, 1993. "Designing institutions for monetary stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 53-84, December.
  2. Jonathan Levin, 2001. "Information and the Market for Lemons," Working Papers, Stanford University, Department of Economics 01004, Stanford University, Department of Economics.
  3. Banks, Jeffrey S & Sobel, Joel, 1987. "Equilibrium Selection in Signaling Games," Econometrica, Econometric Society, Econometric Society, vol. 55(3), pages 647-61, May.
  4. E. Kohlberg & J.-F. Mertens, 1998. "On the Strategic Stability of Equilibria," Levine's Working Paper Archive 445, David K. Levine.
  5. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, Elsevier, vol. 60(2), pages 241-276, August.
  6. Shinnick, Edward & Stephen, Frank H., 2000. "Professional cartels and scale fees: chiselling on the celtic fringe?," International Review of Law and Economics, Elsevier, Elsevier, vol. 20(4), pages 407-423, December.
  7. Roland Benabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(3), pages 489-520, 07.
  8. Ellingsen, Tore, 1997. "Price signals quality: The case of perfectly inelastic demand," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 16(1), pages 43-61, November.
  9. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, American Economic Association, vol. 81(1), pages 224-39, March.
  10. Anke S. Kessler, 1996. "Revisiting the Lemons Market," Discussion Paper Serie A, University of Bonn, Germany 517, University of Bonn, Germany.
  11. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 709, Cowles Foundation for Research in Economics, Yale University.
  12. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(3), pages 488-500, August.
  13. Bagwell, Kyle, 1991. "Optimal Export Policy for a New-Product Monopoly," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1156-69, December.
  14. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, Elsevier, vol. 50(2), pages 381-413, April.
  15. Marco Ottaviani, 2000. "The Value of Public Information in Monopoly," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1479, Econometric Society.
  16. Laffont, Jean-Jacques & Maskin, Eric, 1987. "Monopoly with asymmetric information about quality : Behavior and regulation," European Economic Review, Elsevier, Elsevier, vol. 31(1-2), pages 483-489.
  17. Overgaard, Per Baltzer, 1993. "Price as a signal of quality : A discussion of equilibrium concepts in signalling games," European Journal of Political Economy, Elsevier, Elsevier, vol. 9(4), pages 483-504, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. G. Marletto, 2007. "Crossing The Alps: Three Transport Policy Options," Working Paper CRENoS 200712, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  2. O. Carboni & G. Medda, 2007. "Government Size and the Composition of Public Spending in a Neoclassical Growth Model," Working Paper CRENoS 200701, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cns:cnscwp:200611. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antonello Pau).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.