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Prices as Signals of Quality in Duopoly

Mark N. Herzendorf and Per Overgaard ()
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Mark N. Herzendorf: Bureau of Economics, Federal Trade Commission, Washington, D.C.

No 2001-01, CIE Discussion Papers from University of Copenhagen. Department of Economics. Centre for Industrial Economics

Abstract: This paper studies price signaling in a multi-sender context with two competing firms. Either firm may offer a high or a low quality, but potential customers are, initially, incompletely informed about the quality available at a given outlet. In particular, consumers do not know a priori whether the goods offered are vertically differentiated or homogenous, and, in the latter case, whether they are of high or low quality. We show that fully revealing equilibria are ruled out by a natural equilibrium refinement, whereas partial revelation of information is possible in equilibrium. However, we note that a non-revealing outcome with standard Bertrand-features (pricing at cost) seems likely, whether the goods offered are vertically differentiated or homogenous.

Keywords: Duopoly signaling; Quality uncertainty; Pooling vs. separation (search for similar items in EconPapers)
JEL-codes: C72 D82 L15 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2001-01
New Economics Papers: this item is included in nep-mic
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