Waiting for Signalling Quality

Abstract:     
When a durable good of uncertain quality is introduced to the market, some consumers strategically delay their buying to the next period with the hope of learning the unknown quality. We analyze the monopolist's pricing strategies when consumers have strategic delay incentives. We show when the monopolist will offer introductory low prices in pooling equilibria. We also find two types of separating equilibria: one where high type signals its quality by choosing a different price than the low type in the first period, and another where the high-type monopolist announces the product in the first period and waits to sell only in the second period.

Number of Pages in PDF File: 30

Keywords: Strategic delay, Marketing, Introductory prices, Cream-skimming, Vaporware, Coasian dynamics

JEL Classification: C73, D42, D83, L12

working papers series