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Voluntary Quality Disclosure under Price‐Signaling Competition
Author(s) -
Caldieraro Fabio,
Shin Dongsoo,
Stivers Andrew
Publication year - 2011
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1550
Subject(s) - oligopoly , quality (philosophy) , competition (biology) , imperfect competition , product (mathematics) , microeconomics , economics , product differentiation , imperfect , industrial organization , product market , business , cournot competition , incentive , ecology , philosophy , linguistics , geometry , mathematics , epistemology , biology
We analyze an oligopolistic competition with differentiated products and qualities. The quality of a product is not known to consumers. Each firm can make an imperfect disclosure of its product quality before engaging in price‐signaling competition. There are two regimes for separating equilibrium in our model depending on the parameters. Our analysis reveals that, in one of the separating regimes, price signaling leads to intense price competition between the firms under which not only the high‐quality firm but also the low‐quality firm chooses to disclose its product quality to soften the price competition. Copyright © 2011 John Wiley & Sons, Ltd.