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Price as a signal of product quality: some experimental evidence

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  • Giovanni Mastrobuoni
  • Franco Peracchi
  • Aleksey Tetenov

Abstract

We 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.

Suggested Citation

  • Giovanni Mastrobuoni & Franco Peracchi & Aleksey Tetenov, 2012. "Price as a signal of product quality: some experimental evidence," Carlo Alberto Notebooks 268, Collegio Carlo Alberto, revised 2013.
  • Handle: RePEc:cca:wpaper:268
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    Cited by:

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    2. Villas-Boas, Sofia B, 2020. "Reduced Form Evidence on Belief Updating Under Asymmetric Information," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt08c456vk, Department of Agricultural & Resource Economics, UC Berkeley.
    3. Gregory Colson & Jay R. Corrigan & Carola Grebitus & Maria L. Loureiro & Matthew C. Rousu, 2016. "Which Deceptive Practices, If Any, Should Be Allowed in Experimental Economics Research? Results from Surveys of Applied Experimental Economists and Students," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(2), pages 610-621.
    4. Palma, Marco A. & Ness, Meghan L. & Anderson, David P., 2015. "Buying More than Taste? A Latent Class Analysis of Health and Prestige Determinants of Healthy Food," 2015 Conference (59th), February 10-13, 2015, Rotorua, New Zealand 202566, Australian Agricultural and Resource Economics Society.
    5. Marco A. Palma & Meghan L. Ness & David P. Anderson, 2017. "Fashionable food: a latent class analysis of social status in food purchases," Applied Economics, Taylor & Francis Journals, vol. 49(3), pages 238-250, January.
    6. Qihua Liu & Shan Huang & Liyi Zhang, 2016. "The influence of information cascades on online purchase behaviors of search and experience products," Electronic Commerce Research, Springer, vol. 16(4), pages 553-580, December.
    7. Clarissa Laura Maria Spiess Bru, 2023. "Does the Tasting Note Matter? Language Categories and Their Impact on Professional Ratings and Prices," Working Papers Dissertations 105, Paderborn University, Faculty of Business Administration and Economics.
    8. Jimenez Mori, Raul, 2021. "It’s not price; It’s quality. Satisfaction and price fairness perception," World Development, Elsevier, vol. 139(C).
    9. Tian, Jing & Chen, Rong & Xu, Xiaobing, 2022. "A good way to boost sales? Effects of the proportion of sold-out options on purchase behavior," International Journal of Research in Marketing, Elsevier, vol. 39(1), pages 156-169.
    10. Umbas Krisnanto, 2017. "Purchase Behavior of Rare Products: The Case of Vespa in Indonesia," International Review of Management and Marketing, Econjournals, vol. 7(4), pages 26-33.
    11. Bonnet, Céline & Hilger, James & Villas-Boas, Sofia B., 2017. "Reduced Form Evidence on Belief Updating under Asymmetric Information - The Case of Wine Expert Opinions," TSE Working Papers 17-834, Toulouse School of Economics (TSE), revised May 2019.
    12. Jonathan Willner, 2019. "Private Universities and NCAA D-III Athletics as a General Recruiting Tool," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 25(3), pages 293-307, August.
    13. Palma, Marco & Ness, Meghan & Anderson, David, 2015. "Prestige as a Determining Factor of Food Purchases," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196694, Southern Agricultural Economics Association.
    14. Kavita Sharma & Shivani Garg, 2016. "An Investigation into Consumer Search and Evaluation Behaviour: Effect of Brand Name and Price Perceptions," Vision, , vol. 20(1), pages 24-36, March.

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    More about this item

    Keywords

    Pricing; signaling; product quality; wine ratings;
    All these keywords.

    JEL classification:

    • 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

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