IDEAS home Printed from https://ideas.repec.org/p/iea/carech/1103.html
   My bibliography  Save this paper

Noisy Signaling in Monopoly

Author

Listed:

Abstract

We study the informational role of prices in a stochastic environment. We provide a closed-form solution of the monopoly problem when the price imperfectly signals quality to the uninformed buyers. We then study the effect of noise on output, market price, information flows, and expected profits. The presence of noise may reduce the informational externality due to asymmetric information, which increases the firm's expected profits.

Suggested Citation

  • Leonard J. Mirman & Egas Salgueiro & Marc Santugini, 2011. "Noisy Signaling in Monopoly," Cahiers de recherche 11-03, HEC Montréal, Institut d'économie appliquée, revised May 2013.
    • Handle: RePEc:iea:carech:1103
    as

    Download full text from publisher

    File URL: http://www.hec.ca/iea/cahiers/2011/iea1103_msantugini_v3.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. Daher, Wassim & Mirman, Leonard J., 2007. "Market structure and insider trading," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 306-331.
    3. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    4. Daher, Wassim & Karam, Fida & Mirman, Leonard J., 2012. "Insider trading with different market structures," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 143-154.
    5. Andrew F. Daughety & Jennifer F. Reinganum, 2005. "Secrecy and Safety," American Economic Review, American Economic Association, vol. 95(4), pages 1074-1091, September.
    6. 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.
    7. Sanford Grossman, 1989. "The Informational Role of Prices," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572141, December.
    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. Matthews, Steven A & Mirman, Leonard J, 1983. "Equilibrium Limit Pricing: The Effects of Private Information and Stochastic Demand," Econometrica, Econometric Society, vol. 51(4), pages 981-996, July.
    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. Leonard J. Mirman & Marc Santugini, 2019. "The Informational Role of Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 606-629, April.
    12. 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.
    13. 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.
    14. Jeitschko, Thomas D. & Normann, Hans-Theo, 2012. "Signaling in deterministic and stochastic settings," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 39-55.
    15. 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.
    16. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    17. Daher, Wassim & Mirman, Leonard J. & Santugini, Marc, 2012. "Information in Cournot: Signaling with incomplete control," International Journal of Industrial Organization, Elsevier, vol. 30(4), pages 361-370.
    18. de Haan, Thomas & Offerman, Theo & Sloof, Randolph, 2011. "Noisy signaling: Theory and experiment," Games and Economic Behavior, Elsevier, vol. 73(2), pages 402-428.
    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. Biswas, Pritam & Sinha, Rabindra Kumar & Sen, Phalguni, 2023. "A review of state-of-the-art techniques for the determination of the optimum cut-off grade of a metalliferous deposit with a bibliometric mapping in a surface mine planning context," Resources Policy, Elsevier, vol. 83(C).
    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. Catherine Gendron-Saulnier & Marc Santugini, 2013. "The Informational Benefit of Price Discrimination," Cahiers de recherche 13-02, HEC Montréal, Institut d'économie appliquée.
    4. 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.
    5. Leonard J. Mirman & Egas M. Salgueiro & Marc Santugini, 2014. "Learning in a Perfectly Competitive Market," Cahiers de recherche 1423, CIRPEE.
    6. Catherine Gendron-Saulnier & Marc Santugini, 2013. "Noisy Learning and Price Discrimination: Implications for Information Dissemination and Profits," Cahiers de recherche 1335, CIRPEE.

    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. Catherine Gendron-Saulnier & Marc Santugini, 2013. "The Informational Benefit of Price Discrimination," Cahiers de recherche 13-02, HEC Montréal, Institut d'économie appliquée.
    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. Leonard J. Mirman & Marc Santugini, 2011. "The Simple Analytics of Price Signaling Quality," Cahiers de recherche 11-04, HEC Montréal, Institut d'économie appliquée.
    4. Daher, Wassim & Mirman, Leonard J. & Santugini, Marc, 2012. "Information in Cournot: Signaling with incomplete control," International Journal of Industrial Organization, Elsevier, vol. 30(4), pages 361-370.
    5. Jeong-Yoo Kim, 2017. "Pricing an Experience Composite Good as Coordinated Signals," Manchester School, University of Manchester, vol. 85(2), pages 163-182, March.
    6. Janssen, Maarten, 2017. "Regulating False Discloure," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168159, Verein für Socialpolitik / German Economic Association.
    7. 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.
    8. Tingting Nian & Arun Sundararajan, 2022. "Social Media Marketing, Quality Signaling, and the Goldilocks Principle," Information Systems Research, INFORMS, vol. 33(2), pages 540-556, June.
    9. 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.
    10. Yongmin Chen & Xinyu Hua, 2017. "Competition, Product Safety, and Product Liability," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(2), pages 237-267.
    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. P. Vanin, 2009. "Competition, Reputation and Cheating," Working Papers 683, Dipartimento Scienze Economiche, Universita' di Bologna.
    13. Minghua Chen & Konstantinos Serfes & Eleftherios Zacharias, 2023. "Prices as signals of product quality in a duopoly," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(1), pages 1-31, March.
    14. Dubovik, Andrei & Janssen, Maarten C.W., 2012. "Oligopolistic competition in price and quality," Games and Economic Behavior, Elsevier, vol. 75(1), pages 120-138.
    15. 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.
    16. Philippe Mahenc & Alexandre Volle, 2021. "Price Signaling and Quality Monitoring in Markets for Credence Goods," CEE-M Working Papers hal-03098440, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    17. Philippe Mahenc & Alexandre Volle, 2021. "Price Signaling and Quality Monitoring in Markets for Credence Goods," Working Papers hal-03098440, HAL.
    18. Lucie Bottega & Dorothée Brécard & Philippe Delacote, 2023. "Greening or greenwashing? How consumers’ beliefs influence firms’ advertising strategies on environmental quality," Working Papers 2023.05, FAERE - French Association of Environmental and Resource Economists.
    19. J. Doyne Farmer, 2002. "Market force, ecology and evolution," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 11(5), pages 895-953, November.
    20. Gibson, Rajna & Habib, Michel A. & Ziegler, Alexandre, 2014. "Reinsurance or securitization: The case of natural catastrophe risk," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 79-100.

    More about this item

    Keywords

    Asymmetric information; learning; monopoly; noise; quality; rational expectations; signaling;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • 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
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • 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:1103. See general information about how to correct material in RePEc.

    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. RePEc uses bibliographic data supplied by the respective publishers.