Abstract
ABSTRACTWe study firms' optimal pricing and quality selection in the advance period and the spot period under the information asymmetry. Our study theoretically demonstrates that the advance price as a signal of quality information can affect the separating and pooling equilibrium. Importantly, we find that separating equilibrium is more favorable for high cost‐efficiency if consumers have low prior probability that the firm is high cost‐efficiency. For the firm with low cost‐efficiency, the benefit of the separating equilibrium is the same as information is common sense. But no matter which equilibrium firms choose, they will target all consumers during the spot period.
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