Information and consumer fraud in a signalling model
AbstractThis article considers a two-sided private information model. We assume that two exogenously given qualities are offered in a monopolistic market. Prices are ¿xed. A low quality seller chooses to be either honest (by charging the lower market price) or dishonest (by charging the higher price). We discuss the signaling role of the consumer’s private information on the equilibrium level of dishonesty, incidence of fraud and trade. We demonstrate that the equilibrium incidence of fraud is nonmonotonic in the buyer’s private information when the prior belief favors the low-quality seller strongly enough. This result holds as long as information is noisy and regardless of its private or public nature. Welfare consequences are ambiguous.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2014-01.
Length: 1 pages
Date of creation: Jan 2014
Date of revision:
Publication status: Published by Ivie
Consumer Fraud; Asymmetric Information; Price Signalling;
Find related papers by JEL classification:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-08 (All new papers)
- NEP-COM-2014-02-08 (Industrial Competition)
- NEP-CTA-2014-02-08 (Contract Theory & Applications)
- NEP-MIC-2014-02-08 (Microeconomics)
- NEP-NET-2014-02-08 (Network Economics)
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.:
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01004, Stanford University, Department of Economics.
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- Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
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