Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 60: Price Signals Quality. The Case of One-Sided Asymmetric Information

Tore Ellingsen ()
Additional contact information
Tore Ellingsen: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden

Abstract: The paper considers the pricing decision by a seller who has private information about quality. It is shown that, contrary to widespread belief, high quality products may be sold with positive probability even when buyers have no private information. The separating equilibria have a very simple structure.

Keywords: Pricing; signalling; product quality; separating equilibrium

JEL-codes: L15; D82

14 pages, July 1995

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