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High Price Strategy and Quality Signalling

High Price Strategy and Quality Signalling Abstract I investigate a high price strategy by a durable-goods producer for signalling the high quality of goods. It is assumed that two types of monopolists exist: high-quality and low-quality. The monopolist’s type is assumed to be unknown to consumers in the first period. Before the beginning of the second period, a product reputation established in the past period enables consumers to recognize the real type of the monopolist. I show that there occurs a signalling equilibrium where the high-quality type monopolist uses a high price strategy. An interaction between the new and old products peculiar to the durable-goods markets plays an important role in the pricing strategy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Japanese Economic Review Springer Journals

High Price Strategy and Quality Signalling

Utaka, Atsuo
The Japanese Economic Review , Volume 66 (3): 13 – Sep 1, 2015
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References (34)

Publisher
Springer Journals
Copyright
2015 Japanese Economic Association
ISSN
1352-4739
eISSN
1468-5876
DOI
10.1111/jere.12054
Publisher site
See Article on Publisher Site

Abstract

Abstract I investigate a high price strategy by a durable-goods producer for signalling the high quality of goods. It is assumed that two types of monopolists exist: high-quality and low-quality. The monopolist’s type is assumed to be unknown to consumers in the first period. Before the beginning of the second period, a product reputation established in the past period enables consumers to recognize the real type of the monopolist. I show that there occurs a signalling equilibrium where the high-quality type monopolist uses a high price strategy. An interaction between the new and old products peculiar to the durable-goods markets plays an important role in the pricing strategy.

Journal

The Japanese Economic Review – Springer Journals

Published: Sep 1, 2015

Keywords: economics, general; microeconomics; macroeconomics/monetary economics//financial economics; econometrics; development economics; economic history

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