Affordable Access

Competitive Pricing in Markets with different overhead costs: concealment or leakage of information.

Authors
Disciplines
  • Design

Abstract

Competitive Pricing in Markets with Different Overhead Costs: Concealment or Leakage of Cost Information ? Competitive Pricing in Markets with Different Overhead Costs: Concealment or Leakage of Cost Information ? Eddy Cardinaels∗ Filip Roodhooft† Luk Warlop‡ Gustaaf Van Herck∗∗ An Article Submitted to Journal of Accounting Research Manuscript 1095 ∗University of Tilburg, [email protected] †Catholic University of Leuven and Vlerick Leuven-Gent Management School, ‡Catholic University of Leuven, ∗∗Catholic University of Leuven, Competitive Pricing in Markets with Different Overhead Costs: Concealment or Leakage of Cost Information? ABSTRACT This paper experimentally investigates how leaders and followers in a duopoly set prices for two product markets that have different overhead costs. In a fully crossed two-by-two design, we manipulate the participants’ private cost report quality as either low or high, representing the extent to which these reports reveal that product markets have different overhead costs. We show that when only the leader is given a high- quality cost report, private cost information of higher quality is better incorporated into market prices (that are observable to participants). Both the leader and follower improve in profits and their prices better reflect the differences in overhead costs because the follower infers information from the leader’s prices (information leakage). In contrast, when only the follower receives a high-quality cost report, the leader’s profits and prices do not improve. This occurs because the follower conceals cost information when the leader has a low-quality cost report. Key-words: Pricing, private cost information, signal efficiency, competitive markets 1 1. Introduction This study examines how a leader (first mover) and a follower (second mover) respond to cost report quality, when they set prices for two product markets that vary in the

There are no comments yet on this publication. Be the first to share your thoughts.