CREDIBLE SIGNALS OF THE RELEASE OF NEW VERSIONS | Zendy

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CREDIBLE SIGNALS OF THE RELEASE OF NEW VERSIONS

Author(s) -

Caylor William

Publication year - 2016

Publication title -

economic inquiry

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.823

H-Index - 72

eISSN - 1465-7295

pISSN - 0095-2583

DOI - 10.1111/ecin.12289

Subject(s) - economics , monopoly , microeconomics , innovator , coase theorem , private information retrieval , durable good , ex ante , welfare , market failure , cheap talk , consumer welfare , economic surplus , transaction cost , market economy , finance , macroeconomics , computer science , computer security , entrepreneurship

Prices can credibly signal whether a durable‐goods monopolist will offer an improved good in the future. When the future release of a new version is private information, a monopoly seller will reveal a failure to develop and market a new version with a lower price than he or she would charge in full information. A firm would be willing to pay more to innovate when consumers are uncertain than if they are informed ex ante because a failure to innovate is punished by a low equilibrium price. Consumers' uncertainty about innovation intensifies an unsuccessful innovator's Coasian problem and increases consumer welfare. ( JEL D82, L12, L15)

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