532. Signalling quality with posted prices

Peyman Khezr, Abhijit Sengupta, School of Economics Discussion Paper No. 532 September 2014, School of Economics, The University of Queensland, School of Economics, University of Sydney.

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Abstract

 We study a game in which the seller of an indivisible object wants to sell her object to a finite number of potential buyers with a posted price. The environment is such that the seller has some private information about the quality of the object that cannot be communicated with buyers at zero cost. We focus on the separating equilibrium of this game in which the seller signals her actual type via the posted price. The conditions of the existence and the uniqueness of this equilibrium are studied. In an example, we calculate the seller’s expected payoff at this equilibrium and further discuss some comparative statistics.