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Signaling Quality by Delaying Sales

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Abstract

This paper studies the problem of a monopolist privately informed about its product quality, who can sell its product in advance, and faces forward-looking buyers who learn about the quality over time. We show that if the monopolist prefers to sell sooner than later, the unique equilibrium satisfying a standard refinement criterion will be such that high-quality monopolists will postpone sales so as to separate themselves from low-quality ones. An application of the analysis is the allocation of sales among season tickets for sport or musical events. Several testable implications are derived in the comparative static analysis. A somewhat unexpected result is that an increase in the precision of the monopolist's information has a negative effect on economic efficiency.

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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_476.pdf
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Bibliographic Info

Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 476.

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Length: 35 pages
Date of creation: Oct 2000
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Handle: RePEc:roc:rocher:476

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Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

Related research

Keywords: Asymmetric Information; Signaling; Dynamic Monopoly; Timing of Sales; Stochastic and Dynamic Games.;

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