Introductory Price as a Signal of Cost in a Model of Repeat Business

Kyle Bagwell

The Review of Economic Studies, 1987, vol. 54, issue 3, 365-384

Abstract: A two-period game between firms and consumers is considered. Firms are privately informed about their individual costs, and consumers must pay a search cost in order to learn a firm's current price. Consumers thus have incentive to use introductory price as a signal of cost and, hence, second period price. Recent refinements of the sequential equilibrium concept are employed, and the resulting equilibria involve low introductory prices (introductory sales).

Date: 1987
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:54:y:1987:i:3:p:365-384.

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