IDEAS home Printed from https://ideas.repec.org/p/iea/carech/0909.html
   My bibliography  Save this paper

Information in Cournot: Signaling with Incomplete Control

Author

Listed:

Abstract

We embed signaling in the classical Cournot model in which several firms sell a homogeneous good. The quality is known to all the firms, but only to some buyers. The quantity-setting firms can manipulate the price to signal quality. Because there is only one price in a market for a homogeneous good, each firm incompletely controls the price-signal through the quantity decision. We characterize the unique signaling Cournot equilibrium in which the price signals quality to the uninformed buyers. We then compare the signaling Cournot equilibrium with the full-information Cournot equilibrium. Signaling is shown to increase the equilibrium price. Moreover, under certain conditions regarding the composition of buyers, the number of firms, and the distribution of costs across firms, the effects of signalling and market externality cancel each other. In other words, the profits under signaling Cournot equal the profits of a cartel in a full-information environment.

Suggested Citation

  • Wassim DAHER & Leonard J. MIRMAN & Marc Santugini, 2009. "Information in Cournot: Signaling with Incomplete Control," Cahiers de recherche 09-09, HEC Montréal, Institut d'économie appliquée, revised Nov 2011.
  • Handle: RePEc:iea:carech:0909
    as

    Download full text from publisher

    File URL: http://www.hec.ca/iea/cahiers/2009/iea0909_msantugini_v2.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Daughety, Andrew F & Reinganum, Jennifer F, 1995. "Product Safety: Liability, R&D, and Signaling," American Economic Review, American Economic Association, vol. 85(5), pages 1187-1206, December.
    2. Philippe Aghion & Patrick Bolton & Christopher Harris & Bruno Jullien, 1991. "Optimal Learning by Experimentation," Review of Economic Studies, Oxford University Press, vol. 58(4), pages 621-654.
    3. Sanford J. Grossman & Richard E. Kihlstrom & Leonard J. Mirman, 1977. "A Bayesian Approach to the Production of Information and Learning By Doing," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 533-547.
    4. Mirman Leonard J. & Samuelson Larry & Schlee Edward E., 1994. "Strategic Information Manipulation in Duopolies," Journal of Economic Theory, Elsevier, vol. 62(2), pages 363-384, April.
    5. Ramon Caminal & Xavier Vives, 1996. "Why Market Shares Matter: An Information-Based Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 221-239, Summer.
    6. 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.
    7. Andrew F. Daughety & Jennifer F. Reinganum, 2005. "Secrecy and Safety," American Economic Review, American Economic Association, vol. 95(4), pages 1074-1091, September.
    8. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Communicating quality: a unified model of disclosure and signalling," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 973-989, December.
    9. Mirman, Leonard J & Samuelson, Larry & Urbano, Amparo, 1993. "Duopoly Signal Jamming," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(1), pages 129-149, January.
    10. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Imperfect competition and quality signalling," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 163-183, March.
    11. Anderson, Simon P & Renault, Regis, 2000. "Consumer Information and Firm Pricing: Negative Externalities from Improved Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 721-742, August.
    12. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    13. Daughety, Andrew F. & Reinganum, Jennifer F., 2007. "Competition and confidentiality: Signaling quality in a duopoly when there is universal private information," Games and Economic Behavior, Elsevier, vol. 58(1), pages 94-120, January.
    14. Michael H. Riordan, 1985. "Imperfect Information and Dynamic Conjectural Variations," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 41-50, Spring.
    15. Janssen, Maarten C.W. & Roy, Santanu, 2010. "Signaling quality through prices in an oligopoly," Games and Economic Behavior, Elsevier, vol. 68(1), pages 192-207, January.
    16. Koulovatianos, Christos & Mirman, Leonard J. & Santugini, Marc, 2009. "Optimal growth and uncertainty: Learning," Journal of Economic Theory, Elsevier, vol. 144(1), pages 280-295, January.
    17. 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.
    18. Fabio Caldieraro & Dongsoo Shin & Andrew Stivers, 2011. "Voluntary Quality Disclosure under Price‐Signaling Competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 32, pages 493-504, December.
    19. Asher Wolinsky, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 647-658.
    20. Joseph E. Harrington Jr., 1987. "Oligopolistic Entry Deterrence under Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 211-231, Summer.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jeong-Yoo Kim, 2017. "Pricing an Experience Composite Good as Coordinated Signals," Manchester School, University of Manchester, vol. 85(2), pages 163-182, March.
    2. Leonard J. Mirman & Marc Santugini, 2019. "The Informational Role of Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 606-629, April.
    3. Mirman, Leonard J. & Salgueiro, Egas M. & Santugini, Marc, 2014. "Noisy signaling in monopoly," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 504-511.
    4. Catherine Gendron-Saulnier & Marc Santugini, 2013. "The Informational Benefit of Price Discrimination," Cahiers de recherche 13-02, HEC Montréal, Institut d'économie appliquée.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mirman, Leonard J. & Salgueiro, Egas M. & Santugini, Marc, 2014. "Noisy signaling in monopoly," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 504-511.
    2. Catherine Gendron-Saulnier & Marc Santugini, 2013. "The Informational Benefit of Price Discrimination," Cahiers de recherche 13-02, HEC Montréal, Institut d'économie appliquée.
    3. Leonard J. Mirman & Marc Santugini, 2019. "The Informational Role of Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 606-629, April.
    4. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Communicating quality: a unified model of disclosure and signalling," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 973-989, December.
    5. Janssen, Maarten, 2017. "Regulating False Discloure," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168159, Verein für Socialpolitik / German Economic Association.
    6. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Imperfect competition and quality signalling," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 163-183, March.
    7. Daniela Rroshi & Michael Weichselbaumer, 2021. "What is in a price? Evidence on quality signaling for experience goods," Department of Economics Working Papers wuwp311, Vienna University of Economics and Business, Department of Economics.
    8. Dubovik, Andrei & Janssen, Maarten C.W., 2012. "Oligopolistic competition in price and quality," Games and Economic Behavior, Elsevier, vol. 75(1), pages 120-138.
    9. Jeong-Yoo Kim, 2017. "Pricing an Experience Composite Good as Coordinated Signals," Manchester School, University of Manchester, vol. 85(2), pages 163-182, March.
    10. Leonard J. Mirman & Marc Santugini, 2011. "The Simple Analytics of Price Signaling Quality," Cahiers de recherche 11-04, HEC Montréal, Institut d'économie appliquée.
    11. Helmut Bester & Juri Demuth, 2015. "Signalling Rivalry and Quality Uncertainty in a Duopoly," Journal of Industry, Competition and Trade, Springer, vol. 15(2), pages 135-154, June.
    12. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    13. Daughety, Andrew F. & Reinganum, Jennifer F., 2007. "Competition and confidentiality: Signaling quality in a duopoly when there is universal private information," Games and Economic Behavior, Elsevier, vol. 58(1), pages 94-120, January.
    14. Schmidbauer, Eric & Lubensky, Dmitry, 2018. "New and improved?," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 26-48.
    15. P. Vanin, 2009. "Competition, Reputation and Cheating," Working Papers 683, Dipartimento Scienze Economiche, Universita' di Bologna.
    16. Dan Bernhardt & Bart Taub, 2015. "Learning about common and private values in oligopoly," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 66-85, March.
    17. Kim, Jeong-Yoo & Berg, Nathan, 2017. "Reexamining the Schmalensee effect," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 11, pages 1-12.
    18. Monteiro, Paulo Klinger & Moraga-González, José Luis, 2003. "We Sold a Million Units -- The Role of Advertising Past-Sales," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 57(2), April.
    19. Fulan Wu, 2017. "Signaling Unobservable Quality Choice through Price and Advertising: The Case with Competing Firms," Manchester School, University of Manchester, vol. 85(2), pages 243-260, March.
    20. Adriani, Fabrizio & Deidda, Luca G., 2011. "Competition and the signaling role of prices," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 412-425, July.

    More about this item

    Keywords

    Cournot; Homogeneous good; Learning; Quality; Signaling.;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iea:carech:0909. 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: . General contact details of provider: https://edirc.repec.org/data/iehecca.html .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Patricia Power (email available below). General contact details of provider: https://edirc.repec.org/data/iehecca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.