Eliciting Demand Information through Cheap Talk: An Argument in Favor of Price Regulations

Lars Frisell () and Johann Lagerloef ()
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Lars Frisell: Sveriges Riksbank
Johann Lagerloef: Department of Economics, Royal Holloway, University of London
Authors registered in the RePEc Author Service: Johan N. M. Lagerlöf

No 05/10, Royal Holloway, University of London: Discussion Papers in Economics from Department of Economics, Royal Holloway University of London

Abstract: A firm must decide whether to launch a new product. A launch implies considerable fixed costs, so the firm would like to assess downstream demand before it decides. We study under which conditions a potential buyer would be willing to reveal his willingness to pay under different pricing regimes. We show that the firm’s welfare — as well as consumers’ — may be higher with a commitment to linear pricing than when pricing is unrestricted. That is, if informational asymmetries are significant, price regulations such as the Robinson-Patman Act may be endorsed by all parties.

Keywords: Price regulations; price discrimination; incomplete information; cheap talk; Robinson-Patman Act (search for similar items in EconPapers)
JEL-codes: D82 L11 L42 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2005-08, Revised 2005-08
New Economics Papers: this item is included in nep-com and nep-mic
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Working Paper: Eliciting Demand Information through Cheap Talk: An Argument in Favour of Price Regulations (2005)
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