Eliciting Demand Information Through Cheap Talk: An Argument in Favour of Price Regulations

15 Pages Posted: 5 Jan 2006

See all articles by Lars Frisell

Lars Frisell

Sveriges Riksbank

Johan N. M. Lagerlöf

University of Copenhagen - Department of Economics

Date Written: November 2005

Abstract

A firm must decide whether to launch a new product. A launch implies considerable fixed costs, so the firm would like to assess downstream demand before it decides. We study under which conditions a potential buyer would be willing to reveal his willingness to pay under different pricing regimes. We show that the firm's welfare - as well as consumers' - may be higher with a commitment to linear pricing than when pricing is unrestricted. That is, if informational asymmetries are significant, price regulations such as the Robinson-Patman Act may be endorsed by all parties.

Keywords: Price regulations, price discrimination, incomplete information, cheap talk, Robinson-Patman Act

JEL Classification: D82, L11, L42

Suggested Citation

Frisell, Lars and Lagerlof, Johan N. M., Eliciting Demand Information Through Cheap Talk: An Argument in Favour of Price Regulations (November 2005). CEPR Discussion Paper No. 5343, Available at SSRN: https://ssrn.com/abstract=873891

Lars Frisell

Sveriges Riksbank ( email )

S-103 37 Stockholm
Sweden

Johan N. M. Lagerlof (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

HOME PAGE: http://www.johanlagerlof.com/

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