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Product Quality and Imperfect Information

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  • Alan Schwartz
  • Louis L. Wilde

Abstract

This paper considers markets in which consumers are imperfectly informed about both product prices and quality levels offered by firms. We characterize necessary and sufficient conditions for existence of the various equilibrium configurations of price and quality that can arise in two paradigm cases; when all consumers prefer higher quality and when all consumers prefer lower quality. Our results suggest that firms will exploit imperfect information by charging noncompetitive prices as well as by offering other than ideal quality in the former case, but only by changing noncompetitive prices in the latter case.

Suggested Citation

  • Alan Schwartz & Louis L. Wilde, 1985. "Product Quality and Imperfect Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(2), pages 251-262.
    • Handle: RePEc:oup:restud:v:52:y:1985:i:2:p:251-262.
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    File URL: http://hdl.handle.net/10.2307/2297620
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    Cited by:

    1. Jeanne DALL'ORSO & Romain GAURIOT & Lionel PAGE, 2016. "Disappointment looms around the corner: Visibility and local businesses' market power," QuBE Working Papers 041, QUT Business School.
    2. Lach, Saul & Moraga-González, José-Luis, 2009. "Heterogeneous Price Information and the Effect of Competition," CEPR Discussion Papers 7319, C.E.P.R. Discussion Papers.
    3. Ram Singh, 2009. "RISK, INFORMATIONAL ASYMMETRY AND PRODUCT LIABILITY: An Enquiry Into Conflicting Objectives," Pacific Economic Review, Wiley Blackwell, vol. 14(1), pages 89-112, February.
    4. Garcia, René, 1986. "La théorie économique de l’information : exposé synthétique de la littérature," L'Actualité Economique, Société Canadienne de Science Economique, vol. 62(1), pages 88-109, mars.
    5. Dubovik, Andrei & Janssen, Maarten C.W., 2012. "Oligopolistic competition in price and quality," Games and Economic Behavior, Elsevier, vol. 75(1), pages 120-138.
    6. Gravelle, Hugh & Sivey, Peter, 2010. "Imperfect information in a quality-competitive hospital market," Journal of Health Economics, Elsevier, vol. 29(4), pages 524-535, July.
    7. Besancenot, Damien & Vranceanu, Radu, 2004. "Quality and price dispersion in an equilibrium search model," Journal of Economics and Business, Elsevier, vol. 56(2), pages 99-116.
    8. Ralston, Roy W., 2003. "The effects of customer service, branding, and price on the perceived value of local telephone service," Journal of Business Research, Elsevier, vol. 56(3), pages 201-213, March.
    9. Veeman, Michele M. & Adamowicz, Wiktor L. & Hu, Wuyang, 2005. "Risk Perceptions, Social Interactions and the Influence of Information on Social Attitudes to Agricultural Biotechnology," Project Report Series 24052, University of Alberta, Department of Resource Economics and Environmental Sociology.
    10. Ram Singh, 2002. "Characterization of Efficient Product Liability Rules: When Consumers are Imperfectly Informed," Working papers 110, Centre for Development Economics, Delhi School of Economics.
    11. Christine Moorman & Rex Du & Carl F. Mela, 2005. "The Effect of Standardized Information on Firm Survival and Marketing Strategies," Marketing Science, INFORMS, vol. 24(2), pages 263-274, September.
    12. Grunewald, Orlen & Faulds, David J., 1990. "Product Quality And Value For Processed Foods," 1990 Annual meeting, August 5-8, Vancouver, Canada 270913, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    13. Luca Macedoni, 2022. "Asymmetric information, quality, and regulations," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 1180-1198, September.
    14. Alberto Cavaliere, 2004. "Price Competition with Information Disparities in a Vertically Differentiated Duopoly," Working Papers 2004.39, Fondazione Eni Enrico Mattei.

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