Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, August 13, 2019

Price competition with uncertain quality and cost

By: Sander Heinsalu
Abstract: Consumers in many markets are uncertain about firms' qualities and costs, so buy based on both the price and the quality inferred from it. Optimal pricing depends on consumer heterogeneity only when firms with higher quality have higher costs, regardless of whether costs and qualities are private or public. If better quality firms have lower costs, then good quality is sold cheaper than bad under private costs and qualities, but not under public. However, if higher quality is costlier, then price weakly increases in quality under both informational environments, but with asymmetric information, full separation cannot occur.
   
URL: http://d.repec.org/n?u=RePEc:arx:papers:1903.03987&r=com

https://lawprofessors.typepad.com/antitrustprof_blog/2019/08/price-competition-with-uncertain-quality-and-cost.html

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