Price Signals

Abstract

This thesis contains three papers in which a player's price may signal his private information. Each paper contains a novel game theoretic model, analysis of the model, and a discussion of how the solution contributes to our understanding of real problems. In the first, a defendant's settlement offer may convey the strength of his case to a plaintiff. That papers addresses the questions of why discovery may be only partially utilized and why parties to a case may fail to settle despite the availability of discovery and disclosure. I show that the plaintiff may underutilize discovery in order to openly maintain his belief that the defendant may not have a strong case to affect the defendant disclosure and ultimately his settlement offer. I also consider a similar buyer-seller model with buyer inspection and embed it into two more complex models. The second paper extends the buyer-seller model with two types of sellers to one with three types, which introduces very different kinds of equilibria (ie. partial separation). The application there is to the labour market and, in particular, to the 1973-2006 period in which the US saw a simultaneous substantial fall in the 10th percentile male and female wages and substantial rise in residual wage inequality followed by reversals, which are patterns that other theories have been unable to generate. Under a kind of technological progress in line with the routinization hypothesis, the benefit that the middle type gets from mimicking the high type decreases, which causes him to prefer to separate. That generates the initial comovements and the continued technological progress generates the reversals. In the final paper, each firm may convey through its price its current marginal cost of production, which affects whether or not its customers will return in the next period. Price stickiness arises in the sense that a firm only uses two sale prices and one regular price despite the generality of its cost process.