A new theory of loss-leader pricing is provided in which firms offer low advertised prices for certain goods to signal that their other unadvertised (substitute) goods are not priced too high. The theory applies to the pricing of upgrades, in which the basic version of the good is advertised,...

For a number of applications of signaling, it is sometimes more reasonable to assume that senders rather than nature choose their unobserved features (e.g. their private choices of quality). In other situations, it makes no sense for nature to determine senders' unobserved features (e.g. their...