Reputation and Product Quality
AbstractThis article considers the role that reputation plays in assuring product quality in markets where consumers can only imperfectly judge product quality even after consumption. Three conclusions are derived. First, high quality firms have more customers because they have fewer dissatisfied customers who leave and word-of-mouth advertising results in more arrivals. Second, higher fixed costs can result in a higher equilibrium level of quality. Third, the particular form that word-of-mouth advertising takes can have significant effects on the market outcome. Recommendations consisting of a report of whether the consumer intends to patronize the same firm again generate an externality that is absent when actual estimates of quality are communicated.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal Bell Journal of Economics.
Volume (Year): 14 (1983)
Issue (Month): 2 (Autumn)
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Web page: http://www.rje.org
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- William P. Rogerson, 1985. "Price Advertising and the Deterioration of Product Quality," Discussion Papers 707, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Eric Rasmusen, 2008. "Quality-Ensuring Profits," Working Papers 2008-10, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Morris M. Kleiner & Richard M. Todd, 2009. "Mortgage Broker Regulations That Matter: Analyzing Earnings, Employment, and Outcomes for Consumers," NBER Chapters, in: Studies of Labor Market Intermediation, pages 183-231 National Bureau of Economic Research, Inc.
- William P. Rogerson, 1986. "Advertising as a Signal When Price Guarantees Quality," Discussion Papers 704, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Morris M. Kleiner & Richard M. Todd, 2007. "Mortgage Broker Regulations That Matter: Analyzing Earnings, Employment, and Outcomes for Consumers," NBER Working Papers 13684, National Bureau of Economic Research, Inc.
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