Information and consumer fraud in a signalling model

Silvia Martínez-Gorricho ()
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Silvia Martínez-Gorricho: Dpto. Análisis Económico Aplicado

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: This article considers a two-sided private information model. We assume that two exogenously given qualities are offered in a monopolistic market. Prices are ¿xed. A low quality seller chooses to be either honest (by charging the lower market price) or dishonest (by charging the higher price). We discuss the signaling role of the consumer’s private information on the equilibrium level of dishonesty, incidence of fraud and trade. We demonstrate that the equilibrium incidence of fraud is nonmonotonic in the buyer’s private information when the prior belief favors the low-quality seller strongly enough. This result holds as long as information is noisy and regardless of its private or public nature. Welfare consequences are ambiguous.

Keywords: Consumer Fraud; Asymmetric Information; Price Signalling (search for similar items in EconPapers)
JEL-codes: D42 D82 G14 L15 L51 (search for similar items in EconPapers)
Pages: 1 pages
Date: 2014-01
New Economics Papers: this item is included in nep-com, nep-cta, nep-mic and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2014-01

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