Experience goods and provision of quality

Klaus Kultti ()

No 2017-19, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Delacroix and Shi (Pricing and signaling with frictions, Journal of Economics Theory 2013) study a model featuring buyers with unit demands and sellers with unit supplies. The sellers may produce a high- or a low-quality good. The buyers get a signal about quality but the signalling technology is quite specific; the signal is either completely revealing or uninformative. The author studies the same model with a symmetric signalling technology where high and low signals are always got with positive probability. As a consequence, whenever high-quality goods are produced also low-quality goods are produced. Instead of price posting the author studies trading by auctions. There are two equilibria, and the author quantifies the efficiency loss due to asymmetric information.

JEL-codes: D44 D8 D82 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-com and nep-mic
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https://www.econstor.eu/bitstream/10419/157379/1/885258053.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201719

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