Price as a Signal of Product Availability: Is it Cheap?

19 Pages Posted: 10 Jun 2019

Date Written: September 4, 2012

Abstract

Firms have more information than their customers about the availability of the product. Given the increase in the strategic nature of customers, who consider both prices with future availability risk in making their purchase decisions, the firm may be interested in communicating this information to customers to impact the timing of their purchase. In this paper, we study whether firms can indeed use prices to signal product availability information to their customers. We prove that a signaling or separating equilibrium always exists in which prices perfectly communicate the product availability. Further, we find conditions on the model primitives for which separation is costly, in particular, the firm must price differently from its full information price to signal its product availability.

Keywords: Signaling Games, Inventory, Pricing

Suggested Citation

Allon, Gad and Bassamboo, Achal and Randhawa, Ramandeep S., Price as a Signal of Product Availability: Is it Cheap? (September 4, 2012). Available at SSRN: https://ssrn.com/abstract=3393502 or http://dx.doi.org/10.2139/ssrn.3393502

Gad Allon

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Achal Bassamboo (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Ramandeep S. Randhawa

University of Southern California ( email )

Marshall School of Business
BRI 401, 3670 Trousdale Parkway
Los Angeles, CA 90089
United States

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