 Signaling quality through prices in an oligopolyMaarten Janssen and Santanu Roy Games and Economic Behavior, 2010, vol. 68, issue 1, 192-207 Abstract: Firms signal quality through prices even if the market structure is very competitive and price competition is severe. In a symmetric Bertrand oligopoly where products may differ only in their quality and each firm's product quality is private information (unknown to consumers and to other firms), there exist symmetric fully revealing perfect Bayesian equilibria where low quality firms randomize over an interval of prices and high quality firms charge high prices. Signaling requires that the market power and rent of low quality firms be large enough and often this requires that high quality firms exercise sufficient market power. There is a unique symmetric fully revealing equilibrium satisfying the D1 criterion; in this equilibrium too, both low and high quality firms may exhibit considerable market power. Market power of high quality firms may persist even as the number of firms becomes arbitrarily large. Every D1 equilibrium involves some revelation of information. Keywords: Signaling; Quality; Oligopoly; Incomplete; information (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:68:y:2010:i:1:p:192-207 Access Statistics for this article Games and Economic Behavior is currently edited by E. Kalai More articles in Games and Economic Behavior from Elsevier |
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