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High-Tech Products and the Double Adverse Selection: Does Commercial Distribution Worsen Efficiency?

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  • Alessio Emanuele BIONDO

    ()
    (MSc, Ph.D. University of Catania, Faculty of Economics - DEMQ Corso Italia 55, 95129 Catania – Italy, Tel. 0039 0957537773)

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    Abstract

    We all know that information about products drives consumption choices. But knowledge comes first. Without the correct consciousness about products, even with complete information inefficient outcomes may result. The adverse selection problem is revisited in this paper, successfully interpreting what happens any time when, even if a contract is complete and the information about the good being sold known, consumers either do not know enough about the existence of some relevant characteristic of products, or do not fully understand their specifications. One can argue that intermediaries (e.g., shop-assistants) can solve the issue. But, unfortunately, this is not true. Intermediaries affect market mechanism, alter consumption experiences and can even create incentives for firms to cheat. This implies that high quality firms should quit commercial distribution to create self-owned mono brand dedicated shops, where assistants are educated (since they work directly for the producer), any asymmetry is equilibrated and the incentive to cheat for firms is ceased. The total social welfare will be increased and, in qualitative terms, consumers buy something that fits better their preferences.

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    Bibliographic Info

    Article provided by ScientificPapers.org in its journal Journal of Knowledge Management, Economics and Information Technology.

    Volume (Year): 1 (2011)
    Issue (Month): 7 (December)
    Pages: 18

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    Handle: RePEc:spp:jkmeit:1210

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    Web page: http://www.scientificpapers.org

    Related research

    Keywords: Asymmetric Information; Adverse Selection; Consumer Behaviour; Product Quality;

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    1. Schmitz, Patrick W., 2007. "Optimal selling strategies when buyers may have hard information," European Economic Review, Elsevier, vol. 51(4), pages 859-870, May.
    2. Engers, Maxim & Fernandez, Luis F, 1987. "Market Equilibrium with Hidden Knowledge and Self-selection," Econometrica, Econometric Society, vol. 55(2), pages 425-39, March.
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