Signalling Rivalry and Quality Uncertainty in a Duopoly

Helmut Bester and Juri Demuth ()

Journal of Industry, Competition and Trade, 2015, vol. 15, issue 2, 135-154

Abstract: This paper considers price competition in a duopoly with quality uncertainty. The established firm (the ‘incumbent’) offers a quality that is publicly known; the other firm (the ‘entrant’) offers a new good whose quality is not known by some consumers. The incumbent is fully informed about the entrant’s quality. This leads to price signalling rivalry because the incumbent gains and the entrant loses if observed prices make the uninformed consumers more pessimistic about the entrant’s quality. When the uninformed consumers’ beliefs satisfy the ‘intuitive criterion’ and the ‘unprejudiced belief refinement’, prices signal the entrant’s quality only in a two–sided separating equilibrium and are identical to the full information outcome. Copyright Springer Science+Business Media New York 2015

Keywords: Quality uncertainty; Signalling; Oligopoly; Price competition; D43; D82; L15 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jincot:v:15:y:2015:i:2:p:135-154

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DOI: 10.1007/s10842-014-0178-0

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