Learning while Signaling in Markets

39 Pages Posted: 18 May 2017 Last revised: 16 Jul 2018

See all articles by Umberto Garfagnini

Umberto Garfagnini

University of Surrey - School of Economics

Kane Sweeney

eBay Research Labs

Date Written: July 3, 2018


Consider the case of a seller that can signal its own product quality but faces uncertainty about the cost of signaling. If signaling reveals information about its cost which can be used in future trades, how does learning affect signaling incentives and the informativeness of signals for buyers? Learning can reduce the value of signaling by introducing noisiness in the interpretation of future signaling decisions--the dynamic adverse selection effect. We construct and characterize properties of equilibria in which intermediate seller's types experiment with signaling. These experimental signaling equilibria are ranked with more experimentation leading to lower welfare.

Keywords: Signaling, learning, experimentation, adverse selection

JEL Classification: C73, D83

Suggested Citation

Garfagnini, Umberto and Sweeney, Kane, Learning while Signaling in Markets (July 3, 2018). Available at SSRN: https://ssrn.com/abstract=2970506 or http://dx.doi.org/10.2139/ssrn.2970506

Umberto Garfagnini (Contact Author)

University of Surrey - School of Economics ( email )

Guildford, Surrey GU2 5XH
United Kingdom

Kane Sweeney

eBay Research Labs ( email )

2065 Hamilton Avenue
San Jose, CA
United States

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