This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Signaling Quality through Prices in an Oligopoly

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Maarten C.W. Janssen () (Erasmus University Rotterdam)
Santanu Roy () (Southern Methodist University, Dallas, Texas)

Additional information is available for the following registered author(s):

Abstract

Firms signal high quality through high prices even if the market structure is highly competitive and price competition is severe. In a symmetric Bertrand oligopoly where products may differ only in their quality, production cost is increasing in quality and the quality of each firm’s product is private information (not known to consumers or to other firms), we show that there exist fully revealing equilibria in mixed strategies. In such equilibria, low quality firms enjoy market power when other firms are of high quality. High quality firms charge higher prices than low quality firms but lose business to rival firms with higher probability. Some of the revealing equilibria involve high degree of market power (price close to full information monopoly level) while others are more “competitive”. Under certain conditions, if the number of firms is large enough, information is revealed in every equilibrium.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.tinbergen.nl/discussionpapers/07081.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 07-081/1.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: 22 Oct 2007
Date of revision:
Handle: RePEc:dgr:uvatin:20070081

Contact details of provider:
Web page: http://www.tinbergen.nl/

For technical questions regarding this item, or to correct its listing, contact: (Walther Schoonenberg).

Related research
Keywords: Signaling Quality Oligopoly Incomplete Information

Other versions of this item:

Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

This paper has been announced in the following NEP Reports:

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.:
  1. Andrew F. Daughety & Jennifer F. Reinganum, 2005. "Secrecy and Safety," American Economic Review, American Economic Association, vol. 95(4), pages 1074-1091, September. [Downloadable!] (restricted)
    Other versions:
  2. Janssen, Maarten & Rasmusen, Eric, 2002. "Bertrand Competition under Uncertainty," Journal of Industrial Economics, Blackwell Publishing, vol. 50(1), pages 11-21, March. [Downloadable!] (restricted)
    Other versions:
  3. 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:
  4. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September. [Downloadable!] (restricted)
  5. Osborne, Martin J. & Pitchik, Carolyn, 1983. "Price Competition in a Capacity-Constrained Duopoly," Working Papers 83-08, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  6. Wolinsky, Asher, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Blackwell Publishing, vol. 50(4), pages 647-58, October. [Downloadable!] (restricted)
  7. 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)
  8. Helmut Bester, 1998. "Quality Uncertainty Mitigates Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 828-844, Winter. [Downloadable!] (restricted)
  9. Mark N. Herzendorf & Per Baltzer Overgaard, 2001. "Prices as Signals of Quality in Duopoly," CIE Discussion Papers 2001-01, University of Copenhagen. Department of Economics (formerly Institute of Economics). Centre for Industrial Economics. [Downloadable!]
  10. Fershtman, Chaim, 1982. "Price dispersion in oligopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 389-401, December. [Downloadable!] (restricted)
  11. Dirk Bergemann & Juuso Välimäki, 2006. "Dynamic Pricing of New Experience Goods," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 713-743, August. [Downloadable!] (restricted)
  12. Spulber, Daniel F, 1995. "Bertrand Competition When Rivals' Costs Are Unknown," Journal of Industrial Economics, Blackwell Publishing, vol. 43(1), pages 1-11, March. [Downloadable!] (restricted)
  13. Fluet, Claude & Garella, Paolo G., 2002. "Advertising and prices as signals of quality in a regime of price rivalry," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 907-930, September. [Downloadable!] (restricted)
    Other versions:
  14. Andrew F. Daughety & Jennifer F. Reinganum, 2005. "Imperfect Competition and Quality Signaling," Working Papers 0520, Department of Economics, Vanderbilt University. [Downloadable!]
  15. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September. [Downloadable!] (restricted)
  16. Bagwell, Kyle, 1992. "Pricing to Signal Product Line Quality," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 1(1), pages 151-74, Spring.
    Other versions:
  17. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June. [Downloadable!] (restricted)
  18. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 311-327, Autumn. [Downloadable!] (restricted)
  19. Carl Shapiro, 1983. "Optimal Pricing of Experience Goods," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 497-507, Autumn. [Downloadable!] (restricted)
  20. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? You can create your own reading lists on IDEAS.

This page was last updated on 2008-5-8.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.