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It’s good to be bad: The low quality advantage in consumer search markets

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  • Baumann, Stuart
  • Klymak, Margaryta

Abstract

The management and marketing literature has found that consumers generally expect high-quality sellers to post high prices. We show that low-quality firms can exploit this in search markets to generate a low price perception. This price perception can lead to low-quality firms dominating search markets while producing a vertically inferior good at equal cost to high-quality firms.

Suggested Citation

  • Baumann, Stuart & Klymak, Margaryta, 2022. "It’s good to be bad: The low quality advantage in consumer search markets," Economics Letters, Elsevier, vol. 215(C).
    • Handle: RePEc:eee:ecolet:v:215:y:2022:i:c:s0165176522001367
    DOI: 10.1016/j.econlet.2022.110518
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    References listed on IDEAS

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    1. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    2. Andrew Rhodes, 2015. "Multiproduct Retailing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(1), pages 360-390.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Consumer search; Price perception; Quality;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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