The Simple Analytics of Price Signaling Quality
21 Pages Posted: 23 Mar 2011 Last revised: 19 Sep 2012
Date Written: February 10, 2012
Abstract
We present a diagrammatic and step-by-step analysis of price signaling quality. Because quality is a continuum on the real positive line, out-of-equilibrium beliefs need not be specified, i.e., every positive price is a positive outcome in equilibrium. We first study the behavior of the monopoly when price conveys information about quality. We then show the effect of information flows on welfare, i.e., profit and consumer surplus.
Keywords: Asymmetric Information, Learning, Monopoly, Quality, Signaling.
JEL Classification: D21, D42, D82, D83, D84, L12, L15.
Suggested Citation: Suggested Citation
Mirman, Leonard J. and Santugini, Marc, The Simple Analytics of Price Signaling Quality (February 10, 2012). Available at SSRN: https://ssrn.com/abstract=1791143 or http://dx.doi.org/10.2139/ssrn.1791143
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