is negative for all γ′ > γ and positive for all γ′ < γ.
As an example, suppose s
0
= 0 and c(s, γ) =s
2
/γ. Expression (6.4.26) implies
The class of solutions to this differential equation is
s(γ)
=
γ
2
−
k/
√
2,k
a constant.
Expression (6.4.27) implies
k=
γ
2
; that is,
For more on signaling games with a continuum of types, see Mailath (1987).
6.4.3 Experience Goods and Seller Reputation
Buyers often frequent the same seller repeatedly. If the quality of the seller’s good is
constant, then buyers will learn its quality over time through experience. Beyond issues
of getting buyers to try the product in the first place—which resemb ...
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