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

Lars Frisell and Johan Lagerlof ()
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Lars Frisell: Sveriges Riksbank

Industrial Organization from EconWPA

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)
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
Date: 2005-10-27
Note: Type of Document - pdf; pages: 13
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http://econwpa.repec.org/eps/io/papers/0510/0510011.pdf (application/pdf)

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Working Paper: Eliciting Demand Information through Cheap Talk: An Argument in Favour of Price Regulations (2005) Downloads
Working Paper: Eliciting Demand Information through Cheap Talk: An Argument in Favor of Price Regulations (2005) Downloads
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