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Strategic Pricing, Signalling and Costly Information Acquisition

  • Bester, Helmut
  • Ritzberger, Klaus

Consider a market where an informed monopolist sets the price for a good or asset with a value unknown to potential buyers. Upon observing the price, buyers may pay some cost for information about the value before deciding on purchases. To restrict buyer beliefs we generalize the idea of the Cho-Kreps 'intuitive criterion'. Then there is no separating equilibrium with fully revealing prices. Yet, as the cost of information acquisition becomes small, the equilibrium approaches the full information outcome and prices become perfectly revealing.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2032.

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Date of creation: Dec 1998
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Handle: RePEc:cpr:ceprdp:2032
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  25. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
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