Strategic communication: prices versus quantities

Alonso, Ricardo, 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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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.
Divisions:	Management
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HE Transportation and Communications
JEL classification:	D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L20 - General
Date Deposited:	05 Aug 2014 10:38
Last Modified:	06 Jan 2024 00:15
URI:	http://eprints.lse.ac.uk/id/eprint/58651

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