Price as a signal of product quality: Some experimental evidence
AbstractWe separate the budgetary and non-budgetary effects of price on demand using choice data from wine tasting experiments in which consumers tasted wines of different quality accompanied by fictitious price information. The non-budgetary effect is present and nonlinear: it is strongly positive between 3 and 5 euro, and undetectable between 5 and 8 euro. We find a similar nonlinear price-quality relationship in a large sample of wine ratings from the same price segment, supporting the hypothesis that consumer 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 Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 1214.
Length: 28 pages
Date of creation: 2012
Date of revision: Oct 2012
Other versions of this item:
- 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.
- 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-AGR-2012-11-17 (Agricultural Economics)
- NEP-ALL-2012-11-17 (All new papers)
- NEP-EXP-2012-11-17 (Experimental Economics)
- NEP-IND-2012-11-17 (Industrial Organization)
- NEP-MKT-2012-11-17 (Marketing)
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