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Price and Advertising Signals of Product Quality

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Author Info
Paul R. Milgrom
John Roberts (Stanford University)

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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/cp/p06b/p0676.pdf
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File URL: http://cowles.econ.yale.edu/P/cd/d07a/d0709.pdf
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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 709.

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

Note: CFP 676.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Moulin, Herve, 1979. "Dominance Solvable Voting Schemes," Econometrica, Econometric Society, vol. 47(6), pages 1137-51, November. [Downloadable!] (restricted)
  2. David M Kreps & Robert Wilson, 2003. "Sequential Equilibrium," Levine's Working Paper Archive 618897000000000813, UCLA Department of Economics. [Downloadable!]
    Other versions:
  3. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Wilson, Robert, 1985. "Multi-dimensional signalling," Economics Letters, Elsevier, vol. 19(1), pages 17-21. [Downloadable!] (restricted)
  6. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-59, March. [Downloadable!] (restricted)
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  7. 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. [Downloadable!]
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