Dynamic pricing boosts quality signals, reshaping consumer choices and firm strategies.
The study explores how companies can show the quality of new products through pricing strategies. If a company can set future prices, it can signal high quality by committing to increasing prices over time. This can help the company save on signaling costs and make it harder for lower-quality competitors to copy them. Interestingly, this pricing strategy can either increase or decrease consumer satisfaction and overall welfare. In the long run, a high-quality company can maintain a high price to show its quality without extra costs.