IDEAS home Printed from https://ideas.repec.org/p/nwu/cmsems/722.html
   My bibliography  Save this paper

Introductory Price as a Signal of Cost in a Model of Repeat Business

Author

Listed:
  • Kyle Bagwell

Abstract

A two-period game between firms and consumers is considered. Firms are privately informed about their individual costs, and consumers must pay a search cost in order to learn a firm's current price. Consumers thus have incentive to use introductory price as a signal of cost and, hence, second period price. Recent refinements of the sequential equilibrium concept are employed, and the resulting equilibria involve low introductory prices (introductory sales).
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Kyle Bagwell, 1987. "Introductory Price as a Signal of Cost in a Model of Repeat Business," Discussion Papers 722, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:722
    as

    Download full text from publisher

    File URL: http://www.kellogg.northwestern.edu/research/math/papers/722.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
    2. Kyle Bagwell & Garey Ramey, 1988. "Advertising and Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 59-71, Spring.
    3. Irvine, F Owen, Jr, 1981. "An Optimal Middleman Firm Price Adjustment Policy: The "Short-Run Inventory-Based Pricing Policy."," Economic Inquiry, Western Economic Association International, vol. 19(2), pages 245-269, April.
    4. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    5. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    6. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    7. John Conlisk & Eitan Gerstner & Joel Sobel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(3), pages 489-505.
    8. Bagwell, Kyle, 1990. "Informational product differentiation as a barrier to entry," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 207-223, June.
    9. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
    10. Joel Sobel, 1984. "The Timing of Sales," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 353-368.
    11. Kyle Bagwell, 1987. "Introductory Price as a Signal of Cost in a Model of Repeat Business," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(3), pages 365-384.
    12. Steven Salop, 1977. "The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 393-406.
    13. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    14. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    15. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kathy Baylis & Jeffrey Perloff, 2002. "Price Dispersion on the Internet: Good Firms and Bad Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 21(3), pages 305-324, November.
    2. Bagwell, Kyle & Wolinsky, Asher, 2002. "Game theory and industrial organization," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 49, pages 1851-1895, Elsevier.
    3. Berck, Peter & Brown, Jennifer & Perloff, Jeffrey M. & Villas-Boas, Sofia Berto, 2008. "Sales: Tests of theories on causality and timing," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1257-1273, November.
    4. Shi, Shouyong, 2016. "Customer relationship and sales," Journal of Economic Theory, Elsevier, vol. 166(C), pages 483-516.
    5. Nakamura, Emi & Steinsson, Jón, 2011. "Price setting in forward-looking customer markets," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 220-233.
    6. Paul Heidhues & Botond Köszegi, 2004. "The Impact of Consumer Loss Aversion on Pricing," CIG Working Papers SP II 2004-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    7. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    8. Srihari Govindan & Robert Wilson, 2009. "On Forward Induction," Econometrica, Econometric Society, vol. 77(1), pages 1-28, January.
    9. Katja Seim & Michael Sinkinson, 2016. "Mixed pricing in online marketplaces," Quantitative Marketing and Economics (QME), Springer, vol. 14(2), pages 129-155, June.
    10. Øystein Foros & Mai Nguyen-Ones & Frode Steen, 2021. "The Effects of a Day off from Retail Price Competition: Evidence on Consumer Behavior and Firm Performance in Gasoline Retailing," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 28(1), pages 49-87, January.
    11. Ferto, Imre & Bakucs, Lajos Zoltan, 2009. "The patterns of retail price variation. The case of milk products," 2009 Conference, August 16-22, 2009, Beijing, China 51670, International Association of Agricultural Economists.
    12. Bakucs, Lajos Zoltan & Ferto, Imre, 2009. "Milk Retail Sales Patterns in a Transition Economy. The Case of Hungary," 83rd Annual Conference, March 30 - April 1, 2009, Dublin, Ireland 50932, Agricultural Economics Society.
    13. Sofia Berto Villas-Boas & J. Miguel Villas-Boas, 2008. "Learning, Forgetting, and Sales," Management Science, INFORMS, vol. 54(11), pages 1951-1960, November.
    14. Kyle Bagwell & Garey Ramey, 1988. "Advertising, Coordination, and Signaling," Discussion Papers 787, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    15. Govindan, Srihari & Wilson, Robert B., 2008. "Decision-Theoretic Forward Induction," Research Papers 1986, Stanford University, Graduate School of Business.
    16. Fertő, Imre & Bakucs, Lajos Zoltán, 2009. "Árleszállítások és a kiskereskedelmi árak változása a tejtermékek piacán [Sales and retail price patterns on the market for milk products]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 634-647.
    17. Kyle Bagwell & Garey Ramey, 1992. "Coordination Economies," Discussion Papers 1034, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    18. Eric Anderson & Nanda Kumar, 2007. "Price competition with repeat, loyal buyers," Quantitative Marketing and Economics (QME), Springer, vol. 5(4), pages 333-359, December.
    19. Bruce Ian Carlin & Gustavo Manso, 2009. "Obfuscation, Learning, and the Evolution of Investor Sophistication," NBER Working Papers 14954, National Bureau of Economic Research, Inc.
    20. Lindgren, Charlie & Daunfeldt, Sven-Olov & Rudholm, Niklas, 2021. "Pricing In Retail Markets With Low Search Costs: Evidence From A Price Comparison Website," HFI Working Papers 18, Institute of Retail Economics (Handelns Forskningsinstitut).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nwu:cmsems:722. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fran Walker (email available below). General contact details of provider: https://edirc.repec.org/data/cmnwuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.