Inattentive Consumers and Product Quality
AbstractWe present a model in which some consumers shop on the basis of price alone, without paying attention to product quality. A firm may "cheat" and offer a worthless product to exploit these inattentive consumers. In the unique symmetric equilibrium, firms follow a mixed strategy involving both price and quality dispersion. The presence of inattentive consumers harms attentive consumers, and enables firms to earn positive profits. With many sellers, approximately half of them will cheat. A market transparency policy which boosts the number of attentive consumers will make firms less inclined to cheat, which improves welfare, but the impact of the policy on profit and consumer surplus is ambiguous. (JEL: D18, L13, L15) (c) 2009 by the European Economic Association.
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Bibliographic InfoArticle provided by MIT Press in its journal Journal of the European Economic Association.
Volume (Year): 7 (2009)
Issue (Month): 2-3 (04-05)
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Web page: http://www.mitpressjournals.org/jeea
Other versions of this item:
- D18 - Microeconomics - - Household Behavior - - - Consumer Protection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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