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Strategic Quality Decisions by Heterogeneously Informed Suppliers

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  • Dan Sasaki

    (Institute of Economics, University of Copenhagen)

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    Abstract

    In a differentiated oligopoly market, it is often the case that consumer’s ex post preferences over different product qualities depend upon the state of nature which is not yet observable to the consumers at the time of purchase. One of the most typical examples is a market for durable goods or long-term service contracts, where the state is indeed a future state which has not yet realised when the transaction is made. to analyse such situations, this paper models a two-stage game, in which multiple suppliers move first to choose the quality of their products based upon their idiosyncratic information about the state. Consumers then observe these products, update their beliefs about the state. and decide which products to purchase. Counter intuitively, suppliers’ incentives to reveal their private information are higher when there is a fraction of consumers whose prior about the state is moderately inaccurate, then when every consumer has better prior information. Hence the presence of such “noise consumers” can make all consumers better off, even indluding noise consumers themselves.

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    Bibliographic Info

    Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1997-20.

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    Length: 24 pages
    Date of creation: Dec 1997
    Date of revision:
    Publication status: Published in: Australian Economic Papers, 38 (1999), pp. 203-22
    Handle: RePEc:kud:kuieci:1997-21

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    Related research

    Keywords: revealing equilibrium; overdifferentiation; underdifferentiation; noise consumers;

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