Market thickness, prices and honesty: A quality demand trap
AbstractWe analyze how product quality, prices and demand interact in a dynamic model of asymmetric information. We show that in markets for experience goods, even in the absence of certification, trade may occur, arising from a relation between market thickness and the incentive of sellers to produce high quality. We characterize the equilibrium prices, which depend on the distribution of buyer valuations. Finally, we show that the relationship between market thickness and incentive to produce high quality goods exists up to a certain threshold level of demand.
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Bibliographic InfoArticle provided by Elsevier in its journal Mathematical Social Sciences.
Volume (Year): 65 (2013)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/505565
Other versions of this item:
- Siddhartha Bandyopadhyay, 2012. "Market Thickness, Prices and Honesty: A Quality Demand Trap," Discussion Papers 12-06, Department of Economics, University of Birmingham.
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
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