Consumers increasingly care about the environmental and social responsibility of the production processes used by firms, yet these processes often remain unobservable, even after consumption. We develop a simple model in which firms select either a green or a brown production technology before competing and signaling through prices. Firms observe each other's production choices, while consumers observe only prices. We show that, in the payoff-dominant equilibrium, prices signal when at least one firm produces green, avoiding Bertrand competition. Counterintuitively, raising consumers' environmental concerns or eliminating the information asymmetry may discourage green production and reduce welfare.
Firms selling differentiated products post prices to entice consumers to examine and purchase their products. Consumers inspect these products in increasing order of prices. There exists no pure-strategy equilibrium. We characterize the mixed-strategy equilibrium and show that prices are driven down to marginal cost as the number of firms goes to infinity. For the case of uniformly distributed match values, the equilibrium price distribution is derived explicitly (up to the bounds of the support). A larger number of competitors and higher search costs lead to stochastically lower prices. The predictions of the model fit observed price patterns in online markets for differentiated products.