Download This PaperNoisy Signaling in Monopoly
18 Pages Posted: 25 Feb 2011 Last revised: 29 May 2013
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Noisy Signaling in Monopoly
Noisy Signaling in Monopoly
Date Written: May 29, 2013
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.
Keywords: Asymmetric information, Learning, Monopoly, Noise, Quality, Rational Expectations, Signaling
JEL Classification: D21, D42, D82, D83, D84, L12, L15
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