This paper studies the role of advertising and prices as signals of quality in a purely static setting, where repeat purchases are suppressed altogether, but where advertising affects demand directly. We first show, under standard regularity assumptions, that the high-quality firm will distort...

We analyze how duopoly competition affects the incentives of firms to signal quality through prices. One firm has a high quality, the other a low, but initially potential customers are unable to verify who has the high quality. The incentives are such that the high quality firm prefers to reveal...

In a Hotelling market with endogenous choice of product characteristics increasing market transparency on the consumer side leads to less product differentiation, and lower prices and profits. This is welfare improving for all consumers and total surplus increases.

This paper studies price signaling in a multi-sender context with two competing firms. Either firm may offer a high or a low quality, but potential customers are, initially, incompletely informed about the quality available at a given outlet. In particular, consumers do not know a priori whether...

We model a two period monopoly market with two-sided quality uncertainty. In first period, seller gathers information about consumers´ tastes upon observing its sales. In second period, seller may or may not deliver the information. If monopolist must commit either to reveal or conceal...

We study the long run e¤ects of transparency in a circular town model of a differentiated market. The market is not fully transparent on the consumer side: A fraction of consumers are uninformed about prices. Increasing transparency reduces the equilibrium price, profit and entry of firms. This...

We explore the effects of switching costs on the subgame perfect quality decisions of oligopolists with repeated price competition. We establish a strong strategic quality premium. We show that competition for the establishment of customer relationships will eliminate low-quality firms in period...

This paper presents a signaling model where both price and advertising expenditures are used as signals of the initially unobservable quality of a newly introduced experience good. Consumers can be either "fastidious" or "indifferent". Fastidious individuals place a greater value on a...

We analyze a two-sender quality-signaling game in a duopoly model where goods are horizontally and vertically dierentiated. While locations are chosen under quality uncertainty, firms choose prices and advertising expenditures being privately informed about their types. We show that pure price...

In a differentiated oligopoly market, it is often the case that consumer’s ex post preferences over different product qualities depend upon the state of nature which is not yet observable to the consumers at the time of purchase. One of the most typical examples is a market for durable goods...