The Simple Analytics of Price Signaling Quality

21 Pages Posted: 23 Mar 2011 Last revised: 19 Sep 2012

See all articles by Leonard J. Mirman

Leonard J. Mirman

University of Virginia - Department of Economics

Marc Santugini

University of Virginia - Department of Economics

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

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

Leonard J. Mirman

University of Virginia - Department of Economics ( email )

1818 Winston Rd
Charlottesville, VA
United States

Marc Santugini (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
113
Abstract Views
1,305
Rank
439,112
PlumX Metrics