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Information and Quality in Expanding Markets

Author

Listed:
  • Alcalá Francisco

    (UNIVERSITY OF MURCIA VALENCIAN ECONOMIC RESEARCH INSTITUTE (Ivie))

  • González Maestre Miguel

    (Universidad de Murcia)

  • Martínez Pardina Irene

    (Universidad de Murcia)

Abstract

Can an increasing number of firms and brands exacerbate problems related to asymmetric information on product quality?. This working paper analyzes this trade-off between variety and information using Salop's (1979) framework by introducing quality uncertainty and a simple information diffusion process. As the number of firms increases, the marginal benefits of lower prices and wider product variety may be outweighed by a reduction in consumer information and average quality. Thus, market expansions require a parallel improvement in information mechanisms. Because information has public good characteristics, it is an open question as to how efficiently the market may respond to this requirement.

Suggested Citation

  • Alcalá Francisco & González Maestre Miguel & Martínez Pardina Irene, 2010. "Information and Quality in Expanding Markets," Working Papers 2010102, Fundacion BBVA / BBVA Foundation.
    • Handle: RePEc:fbb:wpaper:2010102
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    More about this item

    Keywords

    Quality; asymmetric information; reputation; horizontal differentiation; market size.;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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