In many industries manufacturers are more well-informed than retailers about the strength of final demand. We analyse a signalling model in which a monopolist manufacturer signals final demand, which can either be high or low, through his choice of wholesale price. The retailers then engage in price competition in differentiated products. We show the existence of a unique, refined equilibrium outcome, at which the two types of the manufacturer choose different wholesale prices. If the number of retailers is sufficiently large, both wholesale prices will equal their full information value, whereas if the number of retailers is "insufficient", the manufacturer with information that demand is low will distort his wholesale price downward. The effect of increased retail competition is to thwart retailer market power and diminish the sensitivity of retailer behaviour to beliefs about final demand, and this alleviates the adverse selection problem embedded in the signalling game. Hence, at a more abstract level, the analysis contributes to our understanding of adverse selection in the face of varying receiver discretion.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
94-04.
Length: 28 pages Date of creation: Nov 1992 Date of revision:
Feb 1994 Handle: RePEc:kud:kuiedp:9404
Contact details of provider: Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark Phone: (+45) 35 32 26 26 Fax: +45 35 32 30 00 Web page: http://www.econ.ku.dk More information through EDIRC
Order Information: Email:
For technical questions regarding this item, or to correct its listing, contact: (Henriette Aabo Hansen).