Strategic communication: Prices versus quantities

Ricardo Alonso*, Wouter Dessein, Niko Matouschek

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

We examine how cheap talk communication between managers within the same firm depends on the type of decisions that the firm makes. A firm consists of a headquarters and two operating divisions. Headquarters is unbiased but does not know the demand conditions in the divisions' markets. Each division manager knows the demand conditions in his market but is also biased toward his division. The division managers communicate with headquarters, which then sets either the prices or quantities for each division. The quality of communication depends on whether headquarters sets prices or quantities. This is the case even though, once communication has taken place, expected profits are the same whether headquarters sets prices or quantities.

Original languageEnglish (US)
Pages (from-to)365-376
Number of pages12
JournalJournal of the European Economic Association
Volume8
Issue number2-3
DOIs
StatePublished - 2010

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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