Imperfect competition and quality signalling

Andrew F Daughety () and Jennifer Reinganum ()

RAND Journal of Economics, 2008, vol. 39, issue 1, pages 163-183

Abstract: We examine the interplay of imperfect competition and incomplete information in the context of price competition among firms producing horizontally and vertically differentiated substitute products. Incomplete information about vertical quality (consumer satisfaction) signalled via price softens price competition. Low-quality firms always prefer the incomplete information game to the full-information analog. Moreover, for high-value markets with a sufficiently high proportion of high-quality firms, these firms also prefer incomplete information to full information. We find that an increase in the loss to consumers associated with the low-quality product may perversely benefit low-quality firms; we consider applications to tort reform and professional licensing. Copyright (c)2008, RAND.

Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.0741-6261.2008.00008.x link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Imperfect Competition and Quality Signaling (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Ordering information: This journal article can be ordered from
http://www.blackwell ... al.asp?ref=0741-6261

Access Statistics for this article

RAND Journal of Economics is edited by James Hosek

More articles in RAND Journal of Economics from RAND Corporation
Series data maintained by Christopher F. Baum ().