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Waiting For Signalling Quality

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  • Hikmet Gunay

Abstract

When a durable good of uncertain quality is introduced to the market, some consumers strategically delay their buying to the next period with the hope of learning the unknown quality. We analyze the monopolist's pricing and "waiting" strategies when consumers have strategic delay incentives. We show when the monopolist offers introductory low prices in pooling equilibria. We also find two types of separating equilibria: one where high type signals its quality by choosing a different price than the low type in the first period, and another where the high-type monopolist announces the product in the first period and waits to sell only in the second period. Waiting creates a credible cost for signalling; hence, the monopolist uses it as a signalling device.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0877.

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Date of creation: Jul 2013
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Handle: RePEc:dpr:wpaper:0877

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  1. Kyle Bagwell & Michael Riordan, 1988. "High and Declining Prices Signal Product Quality," Discussion Papers 808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Heidhues, Paul & Nicolas Melissas, 2003. "Equilibria in a Dynamic Global Game: The role of cohort effects," Royal Economic Society Annual Conference 2003 104, Royal Economic Society.
  3. Subir Bose & Gerhard Orosel & Marco Ottaviani & Lise Vesterlund, 2008. "Monopoly pricing in the binary herding model," Economic Theory, Springer, vol. 37(2), pages 203-241, November.
  4. Hikmet Gunay, 2008. "Information Aggregation Under Strategic Delay," Economics Bulletin, AccessEcon, vol. 12(23), pages 1-8.
  5. 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.
  6. Hikmet Gunay, 2008. "The role of externalities and information aggregation in market collapse," Economic Theory, Springer, vol. 35(2), pages 367-379, May.
  7. Carl Shapiro, 1983. "Optimal Pricing of Experience Goods," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 497-507, Autumn.
  8. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August.
  9. Winston T.H. Koh, 2005. "The Micro-foundations of Intertemporal Price Discrimination," Working Papers 04-2005, Singapore Management University, School of Economics.
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