Eliciting Demand Information through Cheap Talk: An Argument in Favor of Price Regulations
A firm must decide whether to launch a new product. A launch implies considerable fixed costs, so the firm would like to assess downstream demand before it decides. We study under which conditions a potential buyer would be willing to reveal his willingness to pay under different pricing regimes. We show that the firm’s welfare — as well as consumers’ — may be higher with a commitment to linear pricing than when pricing is unrestricted. That is, if informational asymmetries are significant, price regulations such as the Robinson-Patman Act may be endorsed by all parties.
|Date of creation:||Aug 2005|
|Date of revision:||Aug 2005|
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References listed on IDEAS
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- Farrell, Joseph & Gibbons, Robert, 1995. "Cheap Talk about Specific Investments," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 313-334, October.
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