Eliciting Demand Information through Cheap Talk: An Argument in Favour of Price Regulations

Lars Frisell and Johan N. M. Lagerlöf ()

No 5343, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A firm must decide whether to launch a new product. A launch implies considerable fixed costs, so the firm would like to assess downstream demand before it decides. We study under which conditions a potential buyer would be willing to reveal his willingness to pay under different pricing regimes. We show that the firm's welfare - as well as consumers' - may be higher with a commitment to linear pricing than when pricing is unrestricted. That is, if informational asymmetries are significant, price regulations such as the Robinson-Patman Act may be endorsed by all parties.

Keywords: cheap talk; incomplete information; price discrimination; price regulations; Robinson-Patman Act (search for similar items in EconPapers)
JEL-codes: D82 L11 L42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
Date: 2005-11
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Working Paper: Eliciting Demand Information through Cheap Talk: An Argument in Favor of Price Regulations (2005)
Working Paper: Eliciting Demand Information through Cheap Talk: An Argument in Favor of Price Regulations (2005)
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