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EE Seminar

Environmental Economics Seminar

Price Dynamics for Credence Products: Penetration and Skimming Strategies

Speaker

Philippe Mahenc
Professor at CEE-M

Website

Abstract

This paper investigates a dynamic model of price signaling for a credence product of unknown social performance. A new entrant uses prices to reveal social responsibility and uphold reputability through-out a learning phase. In equilibrium, the signaling strategy involves penetration or skimming pricing depending on the competitive pres-
sure faced by the entrant. Faced with competition from conventional incumbents, the socially responsible entrant repeatedly charges low prices to penetrate the market. By contrast, in an untapped market, the socially responsible entrant repeatedly charges high prices to skim the cream o¤ the top of the demand. In both cases, costly signaling
is consistent with Veblen’s law that conspicuous waste is an effective means of reputability.

Practical information

Location

UMR CEE-M
Institut Agro de Montpellier / INRAE - Bat. 26 - Centre de documentation Pierre Bartoli
2 Place Viala 34000 Montpellier

Dates & time

Jan 27, 2023
11:00
27
Jan

Contact

Alexandre Sauquet
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Gwenolé Le Velly
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