DP2032 Strategic Pricing, Signalling and Costly Information Acquisition

Author(s): Helmut Bester, Klaus Ritzberger
Publication Date: December 1998
Keyword(s): information acquisition, price signalling, quality uncertainty
JEL(s): C72, D42, D82, G14
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2032

Consider a market where an informed monopolist sets the price for a good or asset with a value unknown to potential buyers. Upon observing the price, buyers may pay some cost for information about the value before deciding on purchases. To restrict buyer beliefs we generalize the idea of the Cho-Kreps 'intuitive criterion'. Then there is no separating equilibrium with fully revealing prices. Yet, as the cost of information acquisition becomes small, the equilibrium approaches the full information outcome and prices become perfectly revealing.