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Waiting For Signalling Quality

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  • Hikmet Gunay

Abstract

When a durable good of uncertain quality is introduced to the market, some consumers strategically delay their buying to the next period with the hope of learning the unknown quality. We analyze the monopolist's pricing and "waiting" strategies when consumers have strategic delay incentives. We show when the monopolist offers introductory low prices in pooling equilibria. We also find two types of separating equilibria: one where high type signals its quality by choosing a different price than the low type in the first period, and another where the high-type monopolist announces the product in the first period and waits to sell only in the second period. Waiting creates a credible cost for signalling; hence, the monopolist uses it as a signalling device.

Suggested Citation

  • Hikmet Gunay, 2013. "Waiting For Signalling Quality," ISER Discussion Paper 0877, Institute of Social and Economic Research, Osaka University.
  • Handle: RePEc:dpr:wpaper:0877
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    References listed on IDEAS

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    1. 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.
    2. Hikmet Gunay, 2008. "The role of externalities and information aggregation in market collapse," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 35(2), pages 367-379, May.
    3. Paul Heidhues & Nicolas Melissas, 2006. "Equilibria in a dynamic global game: the role of cohort effects," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(3), pages 531-557, August.
    4. Hikmet Gunay, 2008. "Information Aggregation Under Strategic Delay," Economics Bulletin, AccessEcon, vol. 12(23), pages 1-8.
    5. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-239, March.
    6. Subir Bose & Gerhard Orosel & Marco Ottaviani & Lise Vesterlund, 2008. "Monopoly pricing in the binary herding model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(2), pages 203-241, November.
    7. Winston Koh, 2006. "The micro-foundations of intertemporal price discrimination," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(2), pages 393-410, January.
    8. Manaswini Bhalla, 2013. "Waterfall Versus Sprinkler Product Launch Strategy: Influencing the Herd," Journal of Industrial Economics, Wiley Blackwell, vol. 61(1), pages 138-165, March.
    9. Carl Shapiro, 1983. "Optimal Pricing of Experience Goods," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 497-507, Autumn.
    10. Bing Jing, 2011. "Pricing Experience Goods: The Effects of Customer Recognition and Commitment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 451-473, June.
    11. Francesco Squintani, 2000. "Signaling Quality by Delaying Sales," RCER Working Papers 476, University of Rochester - Center for Economic Research (RCER).
    12. Nancy L. Stokey, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 355-371.
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    Cited by:

    1. Aoyagi, Masaki & Bhalla, Manaswini & Gunay, Hikmet, 2016. "Social learning and delay in a dynamic model of price competition," Journal of Economic Theory, Elsevier, vol. 165(C), pages 565-600.

    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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