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Price and Advertising Signals of Product Quality

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  • Paul R. Milgrom
  • John Roberts

    (Stanford University)

Abstract

We present a signalling model, based on ideas of Phillip Nelson, in which both the introductory price and the level of directly "uninformative" advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good. Repeat purchases play a crucial role in our model.

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File URL: http://cowles.econ.yale.edu/P/cd/d07a/d0709.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 709.

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Length: 28 pages
Date of creation: Jun 1984
Date of revision:
Publication status: Published in Journal of Political Economy (1986), 94(4): 796-821
Handle: RePEc:cwl:cwldpp:709

Note: CFP 676.
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Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
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Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. E. Kohlberg & J.-F. Mertens, 1998. "On the Strategic Stability of Equilibria," Levine's Working Paper Archive 445, David K. Levine.
  2. Moulin, Herve, 1979. "Dominance Solvable Voting Schemes," Econometrica, Econometric Society, vol. 47(6), pages 1137-51, November.
  3. Benjamin Klein & Keith B. Leffler, 1980. "Non-Governmental Enforcement of Contracts: The Role of Market Forces in Assuring Quality," UCLA Economics Working Papers 177, UCLA Department of Economics.
  4. John G. Riley, 1976. "Informational Equilibrium," UCLA Economics Working Papers 071, UCLA Department of Economics.
  5. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July.
  6. Wilson, Robert, 1985. "Multi-dimensional signalling," Economics Letters, Elsevier, vol. 19(1), pages 17-21.
  7. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  8. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-50, June.
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