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Introductory Price as a Signal of Cost in a Model of Repeat Business

  • Kyle Bagwell

A two-period game between firms and consumers is considered. Firms are privately informed about their individual costs, and consumers must pay a search cost in order to learn a firm's current price. Consumers thus have incentive to use introductory price as a signal of cost and, hence, second period price. Recent refinements of the sequential equilibrium concept are employed, and the resulting equilibria involve low introductory prices (introductory sales).

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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 722.

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Date of creation: Mar 1987
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Handle: RePEc:nwu:cmsems:722
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  1. John Conlisk & Eitan Gerstner & Joel Sobel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, Oxford University Press, vol. 99(3), pages 489-505.
  2. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
  3. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
  4. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  5. Bagwell, Kyle, 1990. "Informational product differentiation as a barrier to entry," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 207-223, June.
  6. Joel Sobel, 1984. "The Timing of Sales," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 353-368.
  7. Kyle Bagwell, 1987. "Introductory Price as a Signal of Cost in a Model of Repeat Business," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 365-384.
  8. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  9. Steven Salop, 1977. "The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 393-406.
  10. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
  11. Irvine, F Owen, Jr, 1981. "An Optimal Middleman Firm Price Adjustment Policy: The "Short-Run Inventory-Based Pricing Policy."," Economic Inquiry, Western Economic Association International, vol. 19(2), pages 245-69, April.
  12. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-61, October.
  13. Kyle Bagwell & Garey Ramey, 1988. "Advertising and Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 59-71, Spring.
  14. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  15. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July.
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