Eliciting Demand Information through Cheap Talk: An Argument in Favor of Price Regulations
AbstractA firm must decide whether to launch a new product. A launch implies considerable fixed costs, so the firm would like to assess downstream demand before it decides. We study under which conditions a potential buyer would be willing to reveal his willingness to pay under different pricing regimes. We show that the firm's welfare -- as well as consumers' -- may be higher with a commitment to linear pricing than when pricing is unrestricted. That is, if informational asymmetries are significant, price regulations such as the Robinson-Patman Act may be endorsed by all parties.
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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 0510011.
Length: 13 pages
Date of creation: 27 Oct 2005
Date of revision:
Note: Type of Document - pdf; pages: 13
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Price regulations; price discrimination; incomplete information; cheap talk; Robinson-Patman Act;
Other versions of this item:
- Lars Frisell & Johann Lagerloef, 2005. "Eliciting Demand Information through Cheap Talk: An Argument in Favor of Price Regulations," Royal Holloway, University of London: Discussion Papers in Economics 05/10, Department of Economics, Royal Holloway University of London, revised Aug 2005.
- Frisell, Lars & Lagerlöf, Johan N.M., 2005. "Eliciting Demand Information through Cheap Talk: An Argument in Favour of Price Regulations," CEPR Discussion Papers 5343, C.E.P.R. Discussion Papers.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-29 (All new papers)
- NEP-COM-2005-10-29 (Industrial Competition)
- NEP-MIC-2005-10-29 (Microeconomics)
- NEP-REG-2005-10-29 (Regulation)
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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