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Prices, Product Qualities and Asymmetric Information: The Competitive Case

Russell Cooper¹; Thomas W. Ross^2,3

¹ Yale University · ² University of Chicago · ³ Carleton University

Recent developments in the economics of information emphasize the informational content of prices. We examine the degree to which prices convey information on product quality to uninformed agents. Under perfect competition, we show that a rational expectations equilibrium may not exist. When an equilibrium does exist, the information on quality conveyed by prices depends on the shape of the average cost curves and the relative numbers of informed and uniformed agents.

DOI

10.2307/2297687

Volume

51 (2)

Pages

197

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