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Strategic communication: prices versus quantities

Alonso, Ricardo and Matouschek, Niko and Dessein, Wouter (2011) Strategic communication: prices versus quantities. Journal of the European Economic Association, 8 (2-3). pp. 365-376. ISSN 1542-4766

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Identification Number: 10.1111/j.1542-4774.2010.tb00508.x

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.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/%28...
Additional Information: © 2014 John Wiley & Sons, Inc.
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HE Transportation and Communications
Sets: Departments > Management
Date Deposited: 05 Aug 2014 10:38
Last Modified: 05 Aug 2014 13:14
URI: http://eprints.lse.ac.uk/id/eprint/58651

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