Incomplete Information, Signaling, and Competition

Pak-Sing Choi (), Eric Dunaway () and Felix Munoz-Garcia
Additional contact information
Pak-Sing Choi: National Central University
Eric Dunaway: Wabash College

Chapter Chapter 10 in Industrial Organization, 2023, pp 565-643 from Springer

Abstract: Abstract This chapter analyzes strategic interaction of firms under incomplete information. Exercise 10.1 studies entry decisions when the incumbent’s cost is unobservable to the entrant. We show that the low-cost firm can strategically increase output relative to the complete information setting, to the level that the high-cost firm cannot profitably imitate, in order to deter entry. Exercise 10.2 examines the firm’s incentives to offer damaged goods at an extra cost. We find that consumers are better off since high-value consumers can buy the undamaged version of the good at a lower price, while low-value consumers can buy the damaged good who are otherwise not served. Exercise 10.3 considers firms’ incentives to invest in corporate social responsibility (CSR) when consumers do not receive accurate signal on product quality. We report that the high-quality firm can invest in CSR to signal its product differentiation from low-quality rivals, and CSR investments are usually observed in market with noisy signals such as fashionable clothes, cosmetics, and electronics to distinguish from counterfeit or inferior products. Exercise 10.4 identifies firms’ intertemporal pricing decisions when they can advertise and poach consumers from one another. We find that in a symmetric setting, every firm obtains an equal share of the market in the first period and sells to its rival’s consumers at a price half of that selling to its own consumers in the second period.

Date: 2023
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Chapter: Incomplete Information, Signaling, and Competition (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-031-38635-0_10

Ordering information: This item can be ordered from
http://www.springer.com/9783031386350

DOI: 10.1007/978-3-031-38635-0_10

Access Statistics for this chapter

More chapters in Springer Texts in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().