Listing prices as signals of quality in markets with negotiation

Abstract

We analyze markets where a buyer may pay the listing price or negotiate. We show that listing prices can signal quality to attract the right type of buyers. Prices are lower without quality uncertainty or without some of the lower qualities. In equilibrium, higher qualities/prices induce more bargaining, and thus more expensive goods are sold more often through bargaining. © 2011 Blackwell Publishing Ltd and the Editorial Board of The Journal of Industrial Economics.