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The Value of Information About Product Quality

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  • Edward E. Schlee

Abstract

Both consumers and a monopolist producer are uncertain about a good's quality. I derive conditions under which the value of public information about quality will be positive or negative to consumers and the firm. I find that the firm always prefers more information, but consumers may not. I identify two properties of cost functions which lead to a negative value of information for consumers: increasing returns to scale and "sufficiently" convex marginal costs. If, however, demand and cost functions are linear, then consumers always prefer more information. I also analyze the aggregate value of information and extensions to nonmonopolistic markets.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 27 (1996)
Issue (Month): 4 (Winter)
Pages: 803-815

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Handle: RePEc:rje:randje:v:27:y:1996:i:winter:p:803-815

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Citations

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Cited by:
  1. Moscarini, Giuseppe & Ottaviani, Marco, 2001. "Price Competition for an Informed Buyer," Journal of Economic Theory, Elsevier, vol. 101(2), pages 457-493, December.
  2. Eckwert, Bernhard & Zilcha, Itzhak, 2001. "The Value of Information in Production Economies," Journal of Economic Theory, Elsevier, vol. 100(1), pages 172-186, September.
  3. Ching-to Albert MA & Henry Y. Mak, 2011. "Public Report, Price, and Quality," Boston University - Department of Economics - Working Papers Series WP2011-023, Boston University - Department of Economics.
  4. Ram Singh, 2008. "Risk, Informational Asymmetry and Product Liability; An enquiry into conflicting objectives," Working papers 164, Centre for Development Economics, Delhi School of Economics.
  5. Silvia Martínez-Gorricho, 2012. "Beneficial consumer fraud," Working Papers. Serie AD 2012-13, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Ram Singh, 2002. "Characterization of Efficient Product Liability Rules: When Consumers are Imperfectly Informed," Working papers 110, Centre for Development Economics, Delhi School of Economics.
  7. Paul Wachtel & Rainer Haselmann, 2007. "Risk Taking by Banks in the Transition Countries," Working Papers 07-18, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Ching-to Albert MA & Henry Y. Mak, 2012. "Information Disclosure and the Equivalence of Prospective Payment and Cost Reimbursement," Boston University - Department of Economics - Working Papers Series WP2012-008, Boston University - Department of Economics.
  9. Sulganik,E. & Zilcha,I., 1996. "The value of Information: the Case of Signal-Dependent Opportunity Sets," Papers 1-96, Tel Aviv.
  10. Silvia Martínez-Gorricho, 2014. "Information and consumer fraud in a signalling model," Working Papers. Serie AD 2014-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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