DP5343 Eliciting Demand Information through Cheap Talk: An Argument in Favour of Price Regulations
|Author(s):||Lars Frisell, Johan N. M. Lagerlöf|
|Publication Date:||November 2005|
|Keyword(s):||cheap talk, incomplete information, price discrimination, price regulations, Robinson-Patman Act|
|JEL(s):||D82, L11, L42|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5343|
A firm must decide whether to launch a new product. A launch implies considerable fixed costs, so the firm would like to assess downstream demand before it decides. We study under which conditions a potential buyer would be willing to reveal his willingness to pay under different pricing regimes. We show that the firm's welfare - as well as consumers' - may be higher with a commitment to linear pricing than when pricing is unrestricted. That is, if informational asymmetries are significant, price regulations such as the Robinson-Patman Act may be endorsed by all parties.