Firms signal high quality through high prices even if the market structure is highly competitive and price competition … is severe. In a symmetric Bertrand oligopoly where products may differ only in their quality, production cost is … increasing in quality and the quality of each firm’s product is private information (not known to consumers or to other firms …

We consider an oligopolistic market where firms compete in price and quality and where consumers are heterogeneous in … knowledge: some consumers know both the prices and quality of the products offered, some know only the prices and some know …-inefficiency of the price/quality offers. But, better price/quality combinations are signalled with lower prices in one type and with …

quality innovations at low costs, whereas investment outlays have to be financed by external capital. We show that the scope … frictions intensify quality-based (cost-based) sorting of firms if the scope for vertical product differentiation is high (low …