RECEIVER DISCRETION IN SIGNALING MODELS - INFORMATION-TRANSMISSION TOCOMPETING RETAILERS

The paper draws attention to the fact that receiver discretion is an i ntegral aspect of any economic situation in which signalling considera tions are important. We illustrate our main point in a model of a manu facturer, privately informed about the strength of demand, with a numb er of competing retailers. We show that the manufacturer will nor dist ort his wholesale price, as is usual in separating equilibria, if the retail competition is sufficiently intense, and the retailers' discret ion in their price decisions therefore limited, whether as a consequen ce of a large number of retailers or of the retailers' products being close substitutes. (C) 1998 Elsevier Science B.V.