Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94127
Authors: 
Bester, Helmut
Demuth, Juri
Year of Publication: 
2013
Series/Report no.: 
SFB/TR 15 Discussion Paper No. 400
Abstract: 
This paper considers price competition in a duopoly with quality uncertainty. The established firm (the `incumbent') offers a quality that is publicly known; the other firm (the `entrant') offers a new good whose quality is not known by some consumers. The incumbent is fully informed about the entrant's quality. This leads to price signalling rivalry because the incumbent gains and the entrant loses if observed prices make the uninformed consumers more pessimistic about the entrant's quality. When the uninformed consumers' beliefs satisfy the `intuitive criterion' and the `unprejudiced belief refinement', prices signal the entrant's quality only in a two-sided separating equilibrium and are identical to the full information outcome.
Subjects: 
Quality uncertainty
Signalling
Oligopoly
Price competition
JEL: 
D43
D82
L15
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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