Information and consumer fraud in a signalling model
This article considers a two-sided private information model. We assume that two exogenously given qualities are offered in a monopolistic market. Prices are ¿xed. A low quality seller chooses to be either honest (by charging the lower market price) or dishonest (by charging the higher price). We discuss the signaling role of the consumer’s private information on the equilibrium level of dishonesty, incidence of fraud and trade. We demonstrate that the equilibrium incidence of fraud is nonmonotonic in the buyer’s private information when the prior belief favors the low-quality seller strongly enough. This result holds as long as information is noisy and regardless of its private or public nature. Welfare consequences are ambiguous.
|Date of creation:||Jan 2014|
|Date of revision:|
|Publication status:||Published by Ivie|
|Contact details of provider:|| Postal: |
Phone: +34 96 319 00 50
Fax: +34 96 319 00 55
Web page: http://www.ivie.es/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Levin, Jonathan, 2001.
"Information and the Market for Lemons,"
RAND Journal of Economics,
The RAND Corporation, vol. 32(4), pages 657-66, Winter.
- Edward E. Schlee, 1996. "The Value of Information About Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 803-815, Winter.
- Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
- Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
- Yuk-fai Fong, 2005. "When Do Experts Cheat and Whom Do They Target?," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 113-130, Spring.
- Wolinsky, Asher, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 647-58, October.
- Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
- Judd, Kenneth L & Riordan, Michael H, 1994. "Price and Quality in a New Product Monopoly," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 773-89, October.
- Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
When requesting a correction, please mention this item's handle: RePEc:ivi:wpasad:2014-01. 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: (Departamento de Edición)
If references are entirely missing, you can add them using this form.