A Scent of Lemon—Seller Meets Buyer with a Noisy Quality Observation
We consider a market for lemons in which the seller is a monopolistic price setter and the buyer receives a private noisy signal of the product’s quality. We model this as a game and analyze perfect Bayesian equilibrium prices, trading probabilities and gains of trade. In particular, we vary the buyer’s signal precision, from being completely uninformative, as in standard models of lemons markets, to being perfectly informative. We show that high quality units are sold with positive probability even in the limit of uninformative signals, and we identify some discontinuities in the equilibrium predictions at the boundaries of completely uninformative and completely informative signals, respectively.
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.:
- Riley, John G & Samuelson, William F, 1981.
American Economic Review,
American Economic Association, vol. 71(3), pages 381-92, June.
- Milgrom, Paul & Roberts, John, 1986.
"Price and Advertising Signals of Product Quality,"
Journal of Political Economy,
University of Chicago Press, vol. 94(4), pages 796-821, August.
- Bagwell, Kyle & Riordan, Michael H, 1991.
"High and Declining Prices Signal Product Quality,"
American Economic Review,
American Economic Association, vol. 81(1), pages 224-39, March.
- Helmut Bester & Klaus Ritzberger, .
"Strategic Pricing, Signalling, and Costly Information Acquisition,"
008, Departmental Working Papers.
- Bester, Helmut & Ritzberger, Klaus, 2001. "Strategic pricing, signalling, and costly information acquisition," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1347-1361, November.
- Bester, Helmut & Ritzberger, Klaus, 1998. "Strategic Pricing, Signalling and Costly Information Acquisition," CEPR Discussion Papers 2032, C.E.P.R. Discussion Papers.
- Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
- Maskin, Eric S & Riley, John G, 1984.
"Optimal Auctions with Risk Averse Buyers,"
Econometric Society, vol. 52(6), pages 1473-1518, November.
- Ellingsen, Tore, 1997. "Price signals quality: The case of perfectly inelastic demand," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 43-61, November.
- John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June.
- Nick Feltovich & Richmond Harbaugh & Ted To, 2002. "Too Cool for School? Signalling and Countersignalling," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 630-649, Winter.
- Alós-Ferrer, Carlos & Prat, Julien, 2012.
"Job market signaling and employer learning,"
Journal of Economic Theory,
Elsevier, vol. 147(5), pages 1787-1817.
- JÃ¶rgen Weibull & Lars-GÃ¶ran Mattsson & Mark Voorneveld, 2007. "Better May be Worse: Some Monotonicity Results and Paradoxes in Discrete Choice Under Uncertainty," Theory and Decision, Springer, vol. 63(2), pages 121-151, September.
When requesting a correction, please mention this item's handle: RePEc:gam:jgames:v:2:y:2011:i:1:p:163-186:d:11740. 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: (XML Conversion Team)
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.