Signaling quality through price guarantee window for technology-related products

Zhiguo Li, Faqi Xie, Han Zhang and Hongwu Zhang

European Journal of Operational Research, 2024, vol. 313, issue 2, 669-677

Abstract: We study a firm producing and selling a technology-related product with asymmetric quality information to a destination market in two periods. A characteristic of the technology-related product is that its prevailing price may reduce throughout the product’s life cycle and therefore trigger the firm’s price guarantee window. We develop a two-period dynamic signaling game model in which the firm with knowledge of the product quality first decides on the price guarantee window, and then determines the price discount coefficient. We show that quality information disclosure may reduce a high-quality firm’s price guarantee window in which a high-quality firm actively disclosing product quality information can set a shorter price guarantee window to reduce the operating costs. In equilibrium, a high-quality firm would benefit from quality information disclosure but a low-quality firm would be worse off. Quality information disclosure may increase (decrease) a high-quality firm’s first-period sales volume and induce (discourage) more consumers to purchase as early as possible when the quality difference is low (high).

Keywords: OR in marketing; Price guarantee window; Technology-related product; Asymmetric quality information (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:313:y:2024:i:2:p:669-677

DOI: 10.1016/j.ejor.2023.09.007

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