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When Is Advertising a Signal of Product Quality?

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  • Horstmann, Ignatius J
  • MacDonald, Glenn M

Abstract

A model of advertising is presented in which consumption experience is an imperfect indicator of product quality. In equilibrium, neither price nor advertising signal the quality of newly introduced goods. Advertising of established products can be a signal of quality, but if it is, it must be an imperfect signal leaving residual uncertainty that influences consumers' repurchase decision. A set of observable implications follow. Copyright 1994 by MIT Press.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 3 (1994)
Issue (Month): 3 (Fall)
Pages: 561-84

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Handle: RePEc:bla:jemstr:v:3:y:1994:i:3:p:561-84

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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Cited by:
  1. Laurent Linnemer, 2008. "Dissipative Advertising Signals Quality even without Repeat Purchases," CESifo Working Paper Series 2310, CESifo Group Munich.
  2. C. Robert Clark & Ignatius J. Horstmann, 2004. "Advertising and Coordination in Markets with Consumption Scale Effects," CIRANO Working Papers 2004s-35, CIRANO.
  3. Moorthy, Sridhar & Hawkins, Scott A., 2005. "Advertising repetition and quality perception," Journal of Business Research, Elsevier, vol. 58(3), pages 354-360, March.
  4. Dana, James D, Jr, 2001. "Competition in Price and Availability When Availability is Unobservable," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 497-513, Autumn.
  5. Horstmann, Ignatius & MacDonald, Glenn, 2003. "Is advertising a signal of product quality? Evidence from the compact disc player market, 1983-1992," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 317-345, March.
  6. Eric Schmidbauer, 2013. "New and Improved?," Working Papers 2013-01, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  7. Mark Israel, 2005. "Services as Experience Goods: An Empirical Examination of Consumer Learning in Automobile Insurance," American Economic Review, American Economic Association, vol. 95(5), pages 1444-1463, December.
  8. Ignatius Horstmann & Sridhar Moorthy, 2003. "Advertising Spending and Quality for Services: The Role of Capacity," Quantitative Marketing and Economics, Springer, vol. 1(3), pages 337-365, September.
  9. Linnemer, Laurent, 2002. "Price and advertising as signals of quality when some consumers are informed," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 931-947, September.

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