Oligopolistic competition in price and quality
We consider an oligopolistic market where firms compete in price and quality and where consumers have heterogeneous information: some consumers know both the prices, and quality of the products offered, some know only the prices, and some know neither. We show that if there are sufficiently many uninformed consumers, then there exists a unique equilibrium where price is a perfect indicator of quality. This equilibrium is characterized by dispersion and Pareto-inefficiency of the price/quality offers, where better price/quality combinations are associated with lower prices.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
- Chan, Yuk-Shee & Leland, Hayne, 1982. "Prices and Qualities in Markets with Costly Information," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 499-516, October.
- Kyle Bagwell & Michael Riordan, 1988.
"High and Declining Prices Signal Product Quality,"
808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Besancenot, Damien & Vranceanu, Radu, 2004. "Quality and price dispersion in an equilibrium search model," Journal of Economics and Business, Elsevier, vol. 56(2), pages 99-116.
- Rogerson, William P, 1988. "Price Advertising and the Deterioration of Product Quality," Review of Economic Studies, Wiley Blackwell, vol. 55(2), pages 215-29, April.
- Andrew F. Daughety & Jennifer F. Reinganum, 2008.
"Imperfect competition and quality signalling,"
RAND Journal of Economics,
RAND Corporation, vol. 39(1), pages 163-183.
- Andrew F. Daughety & Jennifer F. Reinganum, 2005. "Imperfect Competition and Quality Signaling," Vanderbilt University Department of Economics Working Papers 0520, Vanderbilt University Department of Economics.
- Daughety, Andrew F. & Reinganum, Jennifer F., 2007.
"Competition and confidentiality: Signaling quality in a duopoly when there is universal private information,"
Games and Economic Behavior,
Elsevier, vol. 58(1), pages 94-120, January.
- Andrew F. Daughety & Jennifer F. Reinganum, 2004. "Competition and Confidentiality: Signaling Quality in a Duopoly when there is Universal Private Information," Vanderbilt University Department of Economics Working Papers 0417, Vanderbilt University Department of Economics.
- Mark Armstrong & Yongmin Chen, 2009.
"Inattentive Consumers and Product Quality,"
Journal of the European Economic Association,
MIT Press, vol. 7(2-3), pages 411-422, 04-05.
- Schwartz, Alan & Wilde, Louis L, 1985. "Product Quality and Imperfect Information," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 251-62, April.
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Janssen, Maarten C.W. & Roy, Santanu, 2010.
"Signaling quality through prices in an oligopoly,"
Games and Economic Behavior,
Elsevier, vol. 68(1), pages 192-207, January.
- Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
- George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
- Cooper, Russell & Ross, Thomas W, 1984. "Prices, Product Qualities and Asymmetric Information: The Competitive Case," Review of Economic Studies, Wiley Blackwell, vol. 51(2), pages 197-207, April.
- Wolinsky, Asher, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 647-58, October.
- Janssen, Maarten C. W. & van Reeven, Peran, 1998. "Market Prices and Illegal Practices," International Review of Law and Economics, Elsevier, vol. 18(1), pages 51-60, March.
When requesting a correction, please mention this item's handle: RePEc:eee:gamebe:v:75:y:2012:i:1:p:120-138. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.