Pricing and signaling with frictions

Alain Delacroix and Shouyong Shi

Journal of Economic Theory, 2013, vol. 148, issue 4, 1301-1332

Abstract: We study a market where each seller chooses the quality and price of goods and the number of selling sites. Observing sellersʼ choices of prices and sites, but not quality, buyers choose which site to visit. A sellerʼs choices of prices can direct buyersʼ search and signal quality. A unique equilibrium exists and is separating. When the quality differential is large, the equilibrium implements the efficient allocation with public information. Otherwise, the quality of goods and/or the number of sites created is inefficient, due to a conflict between the search-directing and signaling roles of prices.

Keywords: Search; Signaling; Pricing; Efficiency; Bargaining (search for similar items in EconPapers)
JEL-codes: C78 D8 E24 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (54)

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Related works:
Working Paper: Pricing and Signaling with Frictions (2012)
Working Paper: Pricing and Signaling with Frictions (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:4:p:1301-1332

DOI: 10.1016/j.jet.2013.04.006

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