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Label Confusion: The Groucho Effect of Uncertain Standards

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Author Info

  • Rick Harbaugh

    ()
    (Kelley School of Business, Indiana University, Bloomington, Indiana 47405)

  • John W. Maxwell

    ()
    (Kelley School of Business, Indiana University, Bloomington, Indiana 47405)

  • Beatrice Roussillon

    ()
    (Grenoble Applied Economic Laboratory, University of Grenoble, F-38000 Grenoble, France)

Abstract

Labels certify that a product meets some standard for quality, but often consumers are unsure of the exact standard that the label represents. Focusing on the case of ecolabels for environmental quality, we show how even small amounts of uncertainty can create consumer confusion that reduces or eliminates the value to firms of adopting voluntary labels. First, consumers are most suspicious of a label when a product with a bad reputation has it, so labels are often unpersuasive at showing that a seemingly bad product is actually good. Second, label proliferation aggravates the effect of uncertainty, causing the informativeness of labels to decrease rather than increase. Third, uncertainty makes labeling and nonlabeling equilibria more likely to coexist as the number of labels increases, so consumers face greater strategic uncertainty over how to interpret the presence or absence of a label. Finally, a label can be legitimitized or spoiled for other products when a product with a good or bad reputation displays it, so firms may adopt labels strategically to manipulate such information spillovers, which further exacerbates label confusion. Managers can reduce label confusion by supporting mandatory labeling or by undertaking investments to make certain labels "focal." This paper was accepted by Pradeep Chintagunta and Preyas Desai, special issue editors. This paper was accepted by Pradeep Chintagunta and Preyas Desai, special issue editors.

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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 57 (2011)
Issue (Month): 9 (February)
Pages: 1512-1527

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Handle: RePEc:inm:ormnsc:v:57:y:2011:i:9:p:1512-1527

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Keywords: marketing; communications; information theory; environment;

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Cited by:
  1. Arguedas, Carmen & Blanco, Esther, 2014. "On Fraud and Certification of Corporate Social Responsibility," Working Papers in Economic Theory 2014/02, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  2. Etilé, Fabrice & Teyssier, Sabrina, 2013. "Corporate social responsibility and the economics of consumer social responsibility," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 2013(02), pages 221-259, June.
  3. repec:hal:wpaper:halshs-00736551 is not listed on IDEAS
  4. Fabrice Etile & SABRINA TEYSSIER, 2012. "Signaling Corporate Social Responsibility: Third-party certification vs. brands," Working Papers 168749, Institut National de la Recherche Agronomique, France.
  5. Mohamed Akli Achabou & Adel Rink, 2014. "Barrières et motivations pour la consommation des produits de la mode éthique en France," Working Papers 2014-138, Department of Research, Ipag Business School.
  6. Thomas Lyon & A. Montgomery, 2013. "Tweetjacked: The Impact of Social Media on Corporate Greenwash," Journal of Business Ethics, Springer, vol. 118(4), pages 747-757, December.
  7. Bonroy, O. & Constantatos, C., 2013. "On the economics of labels : a review of the theoretical literature," Working Papers 2013-01, Grenoble Applied Economics Laboratory (GAEL).

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