IDEAS home Printed from https://ideas.repec.org/a/bla/manchs/v72y2004i1p50-59.html
   My bibliography  Save this article

The Advertising of Credence Goods as a Signal of Product Quality

Author

Listed:
  • Sunku Hahn

Abstract

The advertising of credence goods is analysed in a similar way to the way Milgrom and Roberts analysed the advertising of experience goods. The existing literature on credence goods has not considered the possibility that some consumers have the expertise to assess the product's quality and the possibility that the producer can advertise. I assume these two points and show that there exists a unique equilibrium that survives the ‘intuitive criterion’. Also, it is shown that through encouraging producers to accept new technologies advertising may increase social welfare instead of just being a pure social cost.

Suggested Citation

  • Sunku Hahn, 2004. "The Advertising of Credence Goods as a Signal of Product Quality," Manchester School, University of Manchester, vol. 72(1), pages 50-59, January.
    • Handle: RePEc:bla:manchs:v:72:y:2004:i:1:p:50-59
    DOI: 10.1111/j.1467-9957.2004.00379.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-9957.2004.00379.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-9957.2004.00379.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Winand Emons, 1997. "Credence Goods and Fraudelent Experts," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 107-119, Spring.
    2. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
    3. Kenneth L. Judd & Michael H. Riordan, 1994. "Price and Quality in a New Product Monopoly," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 773-789.
    4. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 179-221.
    5. Emons, Winand, 2001. "Credence goods monopolists," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 375-389, March.
    6. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
    7. Kris De Jaegher & Marc Jegers, 2001. "The physician–patient relationship as a game of strategic information transmission," Health Economics, John Wiley & Sons, Ltd., vol. 10(7), pages 651-668, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nathan Berg & Jeong‐Yoo Kim & Ilgyun Seon, 2021. "A performance‐based payment: Signaling the quality of a credence good," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(5), pages 1117-1131, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pim Heijnen, 2013. "Informative advertising by an environmental group," Journal of Economics, Springer, vol. 108(3), pages 249-272, April.
    2. Nathan Berg & Jeong‐Yoo Kim & Ilgyun Seon, 2021. "A performance‐based payment: Signaling the quality of a credence good," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(5), pages 1117-1131, July.
    3. Salvatore Piccolo & Piero Tedeschi & Giovanni Ursino, 2018. "Deceptive Advertising with Rational Buyers," Management Science, INFORMS, vol. 64(3), pages 1291-1310, March.
    4. Choi, Yukyeong & Kim, Jeong-Yoo, 2024. "A signaling theory of reservation cancellation policies," Economic Modelling, Elsevier, vol. 130(C).
    5. Helmut Bester & Matthias Dahm, 2018. "Credence Goods, Costly Diagnosis and Subjective Evaluation," Economic Journal, Royal Economic Society, vol. 128(611), pages 1367-1394, June.
    6. Auriol, Emmanuelle & Schilizzi, Steven G.M., 2015. "Quality signaling through certification in developing countries," Journal of Development Economics, Elsevier, vol. 116(C), pages 105-121.
    7. Dominik Erharter, 2012. "Credence goods markets, distributional preferences and the role of institutions," Working Papers 2012-11, Faculty of Economics and Statistics, Universität Innsbruck.
    8. Hyndman, Kyle & Ozerturk, Saltuk, 2011. "Consumer information in a market for expert services," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 628-640.
    9. Ki, Hyoshin & Kim, Jeong-Yoo, 2022. "Sell green and buy green: A signaling theory of green products," Resource and Energy Economics, Elsevier, vol. 67(C).
    10. Bester, Helmut & Ouyang, Yaofu, 2018. "Optimal procurement of a credence good under limited liability," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 96-129.
    11. Ellingsen, Tore, 1997. "Price signals quality: The case of perfectly inelastic demand," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 43-61, November.
    12. David Bardey & Denis Gromb & David Martimort & Jérôme Pouyet, 2020. "Controlling Sellers Who Provide Advice: Regulation and Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 68(3), pages 409-444, September.
    13. Ajay Kalra & Surendra Rajiv & Kannan Srinivasan, 1998. "Response to Competitive Entry: A Rationale for Delayed Defensive Reaction," Marketing Science, INFORMS, vol. 17(4), pages 380-405.
    14. Yongmin Chen & Jianpei Li & Jin Zhang, 2022. "Efficient Liability In Expert Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(4), pages 1717-1744, November.
    15. Giovanni Anania & Rosanna Nisticò, 2004. "Public Regulation as a Substitute for Trust in Quality Food Markets: What if the Trust Substitute cannot be Fully Trusted?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(4), pages 681-701, December.
    16. Rudolf Kerschbamer & Matthias Sutter & Uwe Dulleck, 2009. "The Impact of Distributional Preferences on (Experimental) Markets for Expert Services," Working Papers 2009-28, Faculty of Economics and Statistics, Universität Innsbruck.
    17. Li, Jianpei & Zhang, Wanzhu, 2022. "Behavior-based pricing and signaling of product quality," MPRA Paper 120263, University Library of Munich, Germany, revised 03 Jan 2023.
    18. Ben Greiner & Le Zhang & Chengxiang Tang, 2017. "Separation of prescription and treatment in health care markets: A laboratory experiment," Health Economics, John Wiley & Sons, Ltd., vol. 26(S3), pages 21-35, December.
    19. Bester, Helmut & Ritzberger, Klaus, 2001. "Strategic pricing, signalling, and costly information acquisition," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1347-1361, November.
    20. Heski Bar-Isaac, 2001. "Self-Confidence and Survival," FMG Discussion Papers dp395, Financial Markets Group.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:manchs:v:72:y:2004:i:1:p:50-59. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/semanuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.