Incentives for Cost-Reducing Investment in a Signalling Model of Product Quality
AbstractOften, consumers do not observe a firm's cost-reducing investment decision. The investment incentive can be weakened when product quality is unobservable before purchase because consumers do not know whether a lower price arises from lower costs or lower quality. This articles examines this issue in a signalling model with both hidden information (about quality) and hidden action (about investment). Surprisingly, asymmetric information about quality may strengthen or weaken a firm's incentive to adopt a process innovation, depending on whether low-price or high-price signalling is used.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 24 (1993)
Issue (Month): 3 (Autumn)
Contact details of provider:
Web page: http://www.rje.org
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Paul Belleflamme & Martin Peitz, 2009. "Asymmetric Information and Overinvestment in Quality," CESifo Working Paper Series 2619, CESifo Group Munich.
- Andrew F. Daughety & Jennifer F. Reinganum, 2006.
"Products Liability, Signaling and Disclosure,"
Vanderbilt University Department of Economics Working Papers
0625, Vanderbilt University Department of Economics.
- Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Products Liability, Signaling and Disclosure," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 106-126, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.