The Simple Analytics of Price Signaling Quality

Leonard Mirman and Marc Santugini (marc.santugini@hec.ca)
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Marc Santugini: IEA, HEC Montréal, http://www.hec.ca/iea/

No 11-04, Cahiers de recherche from HEC Montréal, Institut d'économie appliquée

Abstract: We present a diagrammatic and step-by-step analysis of price signaling quality. Because quality is a continuum on the real positive line, out-of-equilibrium beliefs need not be specified, i.e., every positive price is a positive outcome in equilibrium. We first study the behavior of the monopoly when price conveys information about quality. We then show the effect of information flows on welfare, i.e., profit and consumer surplus.

Keywords: Asymmetric information; learning; monopoly; quality; signaling (search for similar items in EconPapers)
JEL-codes: D21 D42 D82 D83 D84 L12 L15 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2011-03
New Economics Papers: this item is included in nep-com, nep-cta and nep-ind
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