Signalling Rivalry and Quality Uncertainty in a Duopoly

Helmut Bester and Juri Demuth

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: This paper considers price competition in a duopoly with quality uncertainty. The established firm (the `incumbent') offers a quality that is publicly known; the other firm (the `entrant') offers a new good whose quality is not known by some consumers. The incumbent is fully informed about the entrant's quality. This leads to price signalling rivalry because the incumbent gains and the entrant loses if 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', prices signal the entrant's quality only in a two-sided separating equilibrium and are identical to the full information outcome.

Keywords: Quality uncertainty; Signalling; Oligopoly; Price competition (search for similar items in EconPapers)
JEL-codes: D43 D82 L15 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-bec, nep-com, nep-cta, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Signalling Rivalry and Quality Uncertainty in a Duopoly (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:400

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