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| Author: | Ellingsen, T. |
| Title: | Price signals quality: the case of perfectly inelastic demand |
| Journal: | International Journal of Industrial Organization
1997 : NOV, VOL. 16:1, p. 43-61 |
| Index terms: | PRICES SIGNALING QUALITY |
| Language: | eng |
| Abstract: | This paper considers the pricing decision by a seller who has private information about quality. Demand is perfectly inelastic (rectangular). Foe example, there may be a single buyer who wants exactly one unit and whose valuation is known by the seller. It is noted that, contrary to widespread belief, separating equilibria do exist in this model, allowing some trade of high quality products even when the average quality is low. Moreover, by slightly perturbing demand, it is possible to use standard equilibrium refinements to uniquely select the best separating equilibrium outcome. |
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