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Signalling rivalry and quality uncertainty in a duopoly

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  • Bester, Helmut
  • Demuth, Juri

Abstract

This paper considers a market in which only the incumbent's quality is publicly known. The entrant's quality is observed by the incumbent and some fraction of informed consumers. This leads to price signalling rivalry between the duopolists, because the incumbent gains and the entrant loses when observed prices make the uninformed consumers more pessimistic about the entrant's quality. When the uninformed consumers' beliefs satisfy the intuitive criterion and the unprejudiced belief refinement, only a two-sided separating equilibrium can exist and prices are identical to the full information outcome.

Suggested Citation

  • Bester, Helmut & Demuth, Juri, 2011. "Signalling rivalry and quality uncertainty in a duopoly," Discussion Papers 2011/20, Free University Berlin, School of Business & Economics.
  • Handle: RePEc:zbw:fubsbe:201120
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    References listed on IDEAS

    as
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    Cited by:

    1. Vaccari, Federico, 2023. "Competition in costly talk," Journal of Economic Theory, Elsevier, vol. 213(C).
    2. Vaccari, Federico, 2021. "Competition in Signaling," MPRA Paper 106071, University Library of Munich, Germany.
    3. Vida, Péter & Honryo, Takakazu, 2021. "Strategic stability of equilibria in multi-sender signaling games," Games and Economic Behavior, Elsevier, vol. 127(C), pages 102-112.
    4. Ding, Yucheng, 2014. "Why Branded Firm may Benefit from Counterfeit Competition," MPRA Paper 52933, University Library of Munich, Germany.
    5. Fulan Wu, 2014. "Entry And Quality Signaling When The Incumbent Is Informed Of The Entrant'S Quality," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 59(05), pages 1-16.
    6. 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.

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    More about this item

    Keywords

    quality uncertainty; signalling; oligopoly;
    All these keywords.

    JEL classification:

    • 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
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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