Adriani, Fabrizio and Deidda, Luca (2008): Competition and the signaling role of prices.
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In a market where sellers are heterogeneous with respect of the quality of their good and are more informed than buyers, high quality sellers' chances to trade might depend on their ability to inform buyers about the quality of the goods they offer. We study how the strength of competition among sellers affects the ability of sellers of high quality goods to achieve communication by means of appropriate pricing decisions in the context of a market populated by a large number of strategic price setting sellers and a large number of buyers. When competition among sellers is weak high quality sellers are able to use prices as a signaling device and this enables them to trade. By contrast, strong competition among sellers inhibits the role of prices as signals of high quality, and high quality sellers are driven out of the market.
|Item Type:||MPRA Paper|
|Original Title:||Competition and the signaling role of prices|
|English Title:||Competition and the signaling role of prices|
|Keywords:||Market for lemons, Adverse selection, Price dispersion, Price-setting, Signaling, Competition|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; Mechanism Design
D - Microeconomics > D4 - Market Structure and Pricing > D40 - General
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L15 - Information and Product Quality; Standardization and Compatibility
|Depositing User:||Fabrizio Adriani|
|Date Deposited:||08. Jul 2009 02:32|
|Last Modified:||12. Feb 2013 09:48|
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