Signaling quality in vertical relationships

Bontems, Philippe and Mahenc, Philippe (2014) Signaling quality in vertical relationships. TSE Working Paper, n. 14-467, Toulouse

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Official URL: http://tse-fr.eu/pub/27909

Abstract

This paper addresses the issue of price signaling in a model of vertical relationship between a manufacturer and a retailer who share the same information about quality, unlike consumers who do not observe it a priori. We show that delegating the price setting task to a retailer and controlling it through a vertical contract (two-part tariff) helps drastically reduce the number of price signaling equilibria available to the retailer. The outcome of a unique price charged to consumers obtains without invoking the consumer sophistication usually required by selection criterions. The vertical contract turns to be the most e¢ cient way for the vertical chain to tie its hands on a unique ?nal price. This price may disclose or not information to consumers depending on their initial optimism about quality. We prove that there also exists circumstances where consumers prefer ex ante not to learn the true quality through price.

Item Type: Monograph (Working Paper)
Language: English
Date: January 2014
Place of Publication: Toulouse
Uncontrolled Keywords: quality signalling, vertical relationship, information disclosure
JEL codes: D82 - Asymmetric and Private Information
L12 - Monopoly; Monopolization Strategies
L15 - Information and Product Quality; Standardization and Compatibility
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 09 Jul 2014 17:41
Last Modified: 20 Mar 2018 15:20
OAI ID: oai:tse-fr.eu:27909
URI: http://publications.ut-capitole.fr/id/eprint/15827

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