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.