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Price Signalling Differentiated Experience Goods: Are Uniform Movie Prices a Puzzle?

Author

Listed:
  • In-Uck Park

    (University of Bristol)

  • Joon Song

    (Sungkyunkwan University)

Abstract

In a simple static model of differentiated experience goods supplied by a single seller, we show that both a uniform price equilibrium and a price signalling equilibrium coexist. This is in contrast to the received wisdom that price signalling of quality is nonviable in static settings. We also show that the seller’s profit is always higher in the price signalling equilibrium than in the uniform price equilibrium, but the consumer surplus and social welfare may be higher in either equilibrium depending on the distribution of the consumers’tastes for the differentiated goods.

Suggested Citation

  • In-Uck Park & Joon Song, 2021. "Price Signalling Differentiated Experience Goods: Are Uniform Movie Prices a Puzzle?," Korean Economic Review, Korean Economic Association, vol. 37, pages 85-113.
    • Handle: RePEc:kea:keappr:ker-20210101-37-1-04
    as

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    References listed on IDEAS

    as
    1. Orbach, Barak Y. & Einav, Liran, 2007. "Uniform prices for differentiated goods: The case of the movie-theater industry," International Review of Law and Economics, Elsevier, vol. 27(2), pages 129-153.
    2. 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.
    3. Botond Kőszegi & Paul Heidhues, 2008. "Competition and Price Variation When Consumers Are Loss Averse," American Economic Review, American Economic Association, vol. 98(4), pages 1245-1268, September.
    4. Kenneth L. Judd & Michael H. Riordan, 1994. "Price and Quality in a New Product Monopoly," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 773-789.
    5. Asher Wolinsky, 1983. "Prices as Signals of Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(4), pages 647-658.
    6. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-329, March-Apr.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Experience Good; Movie Pricing; Price Signalling; Uniform Pricing;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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