Prices as signals of quality in duopoly PDF Download
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Author: Mark N. Hertzendorf
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Author: Mark N. Hertzendorf
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Author: Matthew Hughes (Donald)
Publisher:
ISBN:
Category : Advertising
Languages : en
Pages : 86
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Book Description
Within any industry, firms typically produce related products over multiple subsequent periods in an attempt to build consumer loyalty and achieve continued sales. Apple releases new iPhones and car companies produce new models every year, relying on consumers believing each new product is of high quality. Firms rely on the spillover effects from previous markets, where firms are able to more easily demonstrate their product's quality to the consumers before purchase. The goal is to find a range of prices which allows the high quality firm to distinguish its type to consumers via the price pH and if spillover effects in subsequent markets can occur. We look at a duopoly of two firms, of high and low qualities, where each firm produces a product in an initial market and a second, related product in a subsequent market. Using each firm's expected profits, based on Bayesian probabilities, we analyze a firm's mimicking strategy to find the range of pH that allows for a separating equilibrium and spillover effects. In a second market where firms are the same qualities as in the first market, the high quality firm experiences spillover effects and can signal its quality with a lower price than in the first market. When firms change qualities in the second market, no spillover effect occurs and the newly high quality firm must increase pH from the previous market in order to separate.
Author: Andrew F. Daughety
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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How does the need to signal quality through price affect equilibrium pricing and profits, when a firm faces a similarly-situated rival? In this paper, we provide a model of non-cooperative signaling by two firms that compete over a continuum of consumers. We assume "universal incomplete information;" that is, each market participant has some private information: each consumer has private information about the intensity of her preferences for the firms' respective products and each firm has private information about its own product's quality. We characterize a symmetric separating equilibrium in which each firm's price reveals its respective product quality. We focus mainly on a model in which the quality attribute is safety (so that the legal system is brought into play) and quality is unobservable due to the use of confidential settlements; a particular specification of parameters yields a common model from the industrial organization literature in which quality is interpreted as the probability that a consumer will find the good satisfactory. We show that the equilibrium prices, the difference between those prices, the associated outputs, and profits are all increasing functions of the ex ante probability of high safety. When quality is interpreted as consumer satisfaction, unobservable quality causes all prices to be distorted upward, and lowers average quality and ex ante expected social welfare, but increases ex ante expected firm profits (when either the probability of high quality or the extent of horizontal product differentiation is sufficiently high). When quality is interpreted as product safety, the foregoing results are modified in that for some parameter values ex ante expected social welfare is higher under confidentiality because such legal secrecy lowers expected litigation costs.
Author: Alberto Cavaliere
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Author: Philippe Bontems
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Author: Federal Trade Federal Trade Commission
Publisher: CreateSpace
ISBN: 9781514156995
Category :
Languages : en
Pages : 48
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Book Description
Can price and advertising be used by vertically differentiated duopolists to signal qualities to consumers? We show that pure price separation is impossible if the vertical differentiation is small, while adding dissipative advertising ensures existence of separating equilibria. Two simple, but non-standard, equilibrium refinements are introduced to deal with the multi-sender nature of the game, and they are shown to produce a unique separating and a unique pooling profile. Pooling results in a zero-profit Bertrand outcome. Separation gives strictly positive duopoly profits, and dissipative advertising is used by the high-quality firm when products are sufficiently close substitutes. Finally, depending on the differentiation, the separating prices of both firms may be distorted upwards or downwards compared to the complete information benchmark.
Author: Federal Trade Federal Trade Commission
Publisher: Createspace Independent Publishing Platform
ISBN: 9781530892402
Category :
Languages : en
Pages : 48
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Book Description
Can price and advertising be used by vertically differentiated duopolists to signal qualities to consumers? We show that pure price separation is impossible if the vertical differentiation is small, while adding dissipative advertising ensures existence of separating equilibria. Two simple, but non-standard, equilibrium refinements are introduced to deal with the multi-sender nature of the game, and they are shown to produce a unique separating and a unique pooling profile. Pooling results in a zero-profit Bertrand outcome. Separation gives strictly positive duopoly profits, and dissipative advertising is used by the high-quality firm when products are sufficiently close substitutes. Finally, depending on the differentiation, the separating prices of both firms may be distorted upwards or downwards compared to the complete information benchmark.
Author: Carla Guadalupi
Publisher:
ISBN:
Category :
Languages : en
Pages : 79
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Book Description
This paper examines the optimal pricing strategy for newly introduced experience goods in a two-period monopoly market with experimentation and private information about quality. Consumers learn about quality through price signaling and experimentation, and communicate their ndings to other buyers via word of mouth. We show the existence of a unique separating equilibrium that satis es the intuitive criterion. In this equilibrium, a high-quality seller signals high quality through a low introductory price that rises in the next period (after experimentation has occurred), while a low-quality one charges a high introductory price, which declines over time because the revealed information is likely to be bad. This result helps explain recent empirical evidence and case studies on the introductory pricing strategies of rms entering foreign product markets.
Author: rabikar chatterjee and peter crosbie
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
The existence of a pure-strategy subgame perfect equilibrium in qualities and prices is investigated in a duopoly model of vertical differentiation where quality improvements require a quadratic variable cost. The alternative cases of partial and full market coverage are considered. It is shown that there exists a parameter range where the incentive to decrease differentiation arises for the high-quality firm, preventing firms to reach a pure-strategy duopoly equilibrium.
