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Competition and the signaling role of prices

Adriani, Fabrizio and Deidda, Luca Gabriele (2010) Competition and the signaling role of prices. Cagliari, CRENoS-CUEC. p. 51 (Working Papers CRENoS, 2010, 12). ISBN 978-88-84-67-588-0. Working Paper.

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Abstract

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 oer. We study how the strength of competition among sellers aects 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:Working Paper
ID Code:5632
Status:Published
Uncontrolled Keywords:Market for lemons, adverse selection, price dispersion, price-setting, signaling, competition
Subjects:Area 13 - Scienze economiche e statistiche > SECS-P/01 Economia politica
Divisions:002 Altri enti e centri di ricerca del Nord Sardegna > CRENoS-Centro Ricerche Economiche Nord Sud, Università di Cagliari e Università di Sassari
001 Università di Sassari > 01 Dipartimenti > Economia, impresa, regolamentazione
Publisher:CRENoS-CUEC
Copyright Holders:© CUEC 2010
ISBN:978-88-84-67-588-0
Publisher Policy:Depositato per gentile concessione del CRENoS e di CUEC
Deposited On:23 Feb 2011 09:00

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