This paper analyzes the role of price as a signal of the quality of a monopoly firm＇s new product. The quality of the goods is drawn from a continuum and is unknown to consumers. We establish a unique separating equi...This paper analyzes the role of price as a signal of the quality of a monopoly firm＇s new product. The quality of the goods is drawn from a continuum and is unknown to consumers. We establish a unique separating equilibrium using equilibrium characterization results for signaling games. The equilibrium price monotonically increases with quality levels and exceeds the complete-information monopoly price for all quality levels but the lowest one. However, the upward distortion decreases as the proportion of pre-informed consumers increases. These results extend both the signaling role of price and characteristics of the separating equilibrium as established in Bagwell and Riordan （1991）.展开更多
文摘This paper analyzes the role of price as a signal of the quality of a monopoly firm＇s new product. The quality of the goods is drawn from a continuum and is unknown to consumers. We establish a unique separating equilibrium using equilibrium characterization results for signaling games. The equilibrium price monotonically increases with quality levels and exceeds the complete-information monopoly price for all quality levels but the lowest one. However, the upward distortion decreases as the proportion of pre-informed consumers increases. These results extend both the signaling role of price and characteristics of the separating equilibrium as established in Bagwell and Riordan （1991）.
