Signaling a New Version in Durable-Good Oligopoly

Abstract

In some industries, firms reveal forthcoming improved products through (credible) announcements. In other industries, future product improvements are not announced. In a durable goods market where sellers have private information about their future products, but do not announce those products, the market outcome is one where information about future products is signaled through prices; the signaling distortion may lead to higher or lower prices and therefore decrease or increase welfare, depending on the degree of product differentiation. Asymmetric information augments the sellers’ willingness to invest in product improvement, compared to full information.

JEL Classification: D82, D83, L13, L15