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Label to match - Firms’ signaling decisions when not everyone cares

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  • Fritz, Qi Gao

Abstract

In this paper, I propose a model to investigate firms’ signaling decisions on the product level. By seeking (imperfect) third-party certification, firms can label their products with good quality for which only some consumers care. Combining the signaling game with a matching problem, I am able to investigate the impact of the size of conscious consumers and asymmetric firm size on firms’ signaling decisions. In general, the level of certification costs determines the occurrence of different equilibria. While more conscious buyers unambiguously increase the probability of separating and semi-separating equilibria, the effect on the pooling equilibrium is not that straightforward. Asymmetric firm size negatively influences the occurrences of all equilibria. However, product allocation schemes play an important role in such negative effects.

Suggested Citation

  • Fritz, Qi Gao, 2023. "Label to match - Firms’ signaling decisions when not everyone cares," SocArXiv ay8rq_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:ay8rq_v1
    DOI: 10.31219/osf.io/ay8rq_v1
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