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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.

Suggested Citation

  • Edward E. Schlee, 1996. "The Value of Information About Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 803-815, Winter.
    • Handle: RePEc:rje:randje:v:27:y:1996:i:winter:p:803-815
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