Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86632
Authors: 
Janssen, Maarten C.W.
Roy, Santanu
Year of Publication: 
2007
Series/Report no.: 
Tinbergen Institute Discussion Paper 07-081/1
Abstract: 
Firms signal high quality through high prices even if the market structure is highly competitive and price competition is severe. In a symmetric Bertrand oligopoly where products may differ only in their quality, production cost is increasing in quality and the quality of each firm’s product is private information (not known to consumers or to other firms), we show that there exist fully revealing equilibria in mixed strategies. In such equilibria, low quality firms enjoy market power when other firms are of high quality. High quality firms charge higher prices than low quality firms but lose business to rival firms with higher probability. Some of the revealing equilibria involve high degree of market power (price close to full information monopoly level) while others are more “competitive”. Under certain conditions, if the number of firms is large enough, information is revealed in every equilibrium.
Subjects: 
Signaling
Quality
Oligopoly
Incomplete Information
JEL: 
L13
L15
D82
D43
Document Type: 
Working Paper

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