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Abstract Prices often serve as signals of firms’ innovative product cost types due to asymmetric cost information, and thus impact consumers’ expectation of future prices and purchasing decisions. We construct a game-theoretic model under perfect and imperfect information respectively to study how cost information disclosure affects consumers’ purchasing behavior as well as the firm’s optimal pricing strategy and profit. It is found that when cost is the firm’s private information, if the probability of the firm being a low-cost type is high or the difference in costs between the two types of firms is large, the high-cost firm prefers to separate itself from the low-cost firm, otherwise it prefers the pooling pricing strategy. Cost information disclosure will lower the firm’s expected price but increase both the firm’s expected profit and the expected consumer surplus. Moreover, when all consumers are non-strategic, the firm will price higher and obtain more profits.
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Received: 23 March 2017
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