Noisy Signaling in Monopoly
Leonard J. Mirman
University of Virginia - Department of Economics
Egas M. Salgueiro
Universidade de Aveiro, S.A.G.E.I.
HEC Montreal, Institute of Applied Economics; Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPÉE)
May 29, 2013
We study the informational role of prices in a stochastic environment. We provide a closed-form solution of the monopoly problem when the price imperfectly signals quality to the uninformed buyers. We then study the effect of noise on output, market price, information flows, and expected profits. The presence of noise may reduce the informational externality due to asymmetric information, which increases the firm's expected profits.
Number of Pages in PDF File: 18
Keywords: Asymmetric information, Learning, Monopoly, Noise, Quality, Rational Expectations, Signaling
JEL Classification: D21, D42, D82, D83, D84, L12, L15
Date posted: February 25, 2011 ; Last revised: May 29, 2013
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