Prices, product qualities and asymmetric information: The competitive case

Russell Cooper; Thomas W. Ross

doi:10.2307/2297687

Prices, product qualities and asymmetric information: The competitive case

Russell Cooper
, Thomas W. Ross

Economics

Research output: Contribution to journal › Article › peer-review

90 Scopus citations

Abstract

Recent developments in the economics of information emphasize the informational content of prices. We examine the degree to which prices convey information on product quality to uninformed agents. Under perfect competition, we show that a rational expectations equilibrium may not exist. When an equilibrium does exist, the information on quality conveyed by prices depends on the shape of the average cost curves and the relative numbers of informed and uniformed agents.

Original language	English (US)
Pages (from-to)	197-207
Number of pages	11
Journal	Review of Economic Studies
Volume	51
Issue number	2
DOIs	https://doi.org/10.2307/2297687
State	Published - Apr 1984

All Science Journal Classification (ASJC) codes

Economics and Econometrics

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10.2307/2297687

Cite this

@article{e852287dceb64e96afdd075c9082f408,

title = "Prices, product qualities and asymmetric information: The competitive case",

abstract = "Recent developments in the economics of information emphasize the informational content of prices. We examine the degree to which prices convey information on product quality to uninformed agents. Under perfect competition, we show that a rational expectations equilibrium may not exist. When an equilibrium does exist, the information on quality conveyed by prices depends on the shape of the average cost curves and the relative numbers of informed and uniformed agents.",

author = "Russell Cooper and Ross, \{Thomas W.\}",

note = "Funding Information: This essay is adapted from parts of Cooper-Ross (1983). We would like to thank Costas Azariadis, John Bigelow, David Cass, Joseph Farrell, Sanford Grossman, Oliver Hart, Paul Milgrom, Mike Peters, Andy Postlewaite and Pablo Spiller for helpful comments. The useful comments and suggestions made by a pair of anonymous referees and the participants of several workshops are also gratefully acknowledged. All remaining errors are our own. After completing an earlier draft of this paper, we became aware of the related work of Farrell (1982) whose model is similar to the one in Section 3 of this paper. Financial assistance from Richard D. Irwin Foundation, the Economics Research Unit at the University of Pennsylvania and from the Social Sciences and Humanities Research Council of Canada is gratefully acknowledged.",

year = "1984",

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doi = "10.2307/2297687",

language = "English (US)",

volume = "51",

pages = "197--207",

journal = "Review of Economic Studies",

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PY - 1984/4

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N2 - Recent developments in the economics of information emphasize the informational content of prices. We examine the degree to which prices convey information on product quality to uninformed agents. Under perfect competition, we show that a rational expectations equilibrium may not exist. When an equilibrium does exist, the information on quality conveyed by prices depends on the shape of the average cost curves and the relative numbers of informed and uniformed agents.

AB - Recent developments in the economics of information emphasize the informational content of prices. We examine the degree to which prices convey information on product quality to uninformed agents. Under perfect competition, we show that a rational expectations equilibrium may not exist. When an equilibrium does exist, the information on quality conveyed by prices depends on the shape of the average cost curves and the relative numbers of informed and uniformed agents.

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JO - Review of Economic Studies

JF - Review of Economic Studies

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ER -

Prices, product qualities and asymmetric information: The competitive case

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