Publisher: John Wiley & Sons Inc

E-ISSN: 1468-5876|66|3|408-420

ISSN: 1352-4739

Source: THE JAPANESE ECONOMIC REVIEW, Vol.66, Iss.3, 2015-09, pp. : 408-420

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Abstract

I investigate a high price strategy by a durable‐goods producer for signalling the high quality of goods. It is assumed that two types of monopolists exist: high‐quality and low‐quality. The monopolist's type is assumed to be unknown to consumers in the first period. Before the beginning of the second period, a product reputation established in the past period enables consumers to recognize the real type of the monopolist. I show that there occurs a signalling equilibrium where the high‐quality type monopolist uses a high price strategy. An interaction between the new and old products peculiar to the durable‐goods markets plays an important role in the pricing strategy.