(c) Now suppose = 1 > so all consumers know that L sells the lowestquality good,...

Question:

(c) Now suppose ψ = 1 > so all consumers know that L sells the lowestquality good, and H sells the highest-quality good. If producer L can advertise to make consumers believe he is producing a higher-quality good, discuss his incentive to advertise. Would this increase or decrease price competition? How would you expect producer H to respond?

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