Price as a signal of product quality: some experimental evidence
AbstractWe use experimental data to disentangle signaling and budgetary effects of price on wine demand. The experimental design allow us to isolate in a simple and intuitive way the two effects. The signaling effect is present and nonlinear: it is strongly positive between EUR3 and EUR5, and undetectable between EUR5 and EUR8. We find a similar nonlinear price-quality relationship in a large sample of wine ratings from the same price segment, supporting the hypothesis that taster behavior in the experiment is consistent with rationally using prices as signals of quality. Price signals also have greater importance for inexperienced (young) consumers.
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Bibliographic InfoPaper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 268.
Length: 26 pages
Date of creation: 2012
Date of revision: 2013
Pricing; signaling; product quality; wine ratings;
Other versions of this item:
- Giovanni Mastrobuoni & Franco Peracchi & Aleksey Tetenov, 2012. "Price as a signal of product quality: Some experimental evidence," EIEF Working Papers Series 1214, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2012.
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-27 (All new papers)
- NEP-COM-2012-10-27 (Industrial Competition)
- NEP-EXP-2012-10-27 (Experimental Economics)
- NEP-IND-2012-10-27 (Industrial Organization)
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