Signaling Quality by Delaying Sales
This paper studies the problem of a monopolist privately informed about its product quality, who can sell its product in advance, and faces forward-looking buyers who learn about the quality over time. We show that if the monopolist prefers to sell sooner than later, the unique equilibrium satisfying a standard refinement criterion will be such that high-quality monopolists will postpone sales so as to separate themselves from low-quality ones. An application of the analysis is the allocation of sales among season tickets for sport or musical events. Several testable implications are derived in the comparative static analysis. A somewhat unexpected result is that an increase in the precision of the monopolist's information has a negative effect on economic efficiency.
|Date of creation:||Oct 2000|
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