High and Declining Prices Signal Product Quality
AbstractHigh and declining prices signal a high-quality product. High prices are the efficient means of signaling, because the consequent loss of sales volume is most damaging for lower-cost, lower-quality products. As time passes and the number of informed consumers increases, the signaling distortion lessens, resulting in a declining price profile. The prediction of high and declining prices is robust across a variety of dynamic models and is consistent with recent empirical findings. Copyright 1991 by American Economic Association.
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 808.
Date of creation: Oct 1988
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