Pricing and signaling with frictions

Alain Delacroix, Shouyong Shi

Research output: Contribution to journalArticle

17 Scopus citations

Abstract

We study a market where each seller chooses the quality and price of goods and the number of selling sites. Observing sellers' choices of prices and sites, but not quality, buyers choose which site to visit. A seller's choices of prices can direct buyers' search and signal quality. A unique equilibrium exists and is separating. When the quality differential is large, the equilibrium implements the efficient allocation with public information. Otherwise, the quality of goods and/or the number of sites created is inefficient, due to a conflict between the search-directing and signaling roles of prices.

Original languageEnglish (US)
Pages (from-to)1301-1332
Number of pages32
JournalJournal of Economic Theory
Volume148
Issue number4
DOIs
StatePublished - Jul 1 2013

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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