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Information and Quality in Expanding Markets

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Author Info

  • Alcalá Francisco

    ()
    (UNIVERSITY OF MURCIA VALENCIAN ECONOMIC RESEARCH INSTITUTE (Ivie))

  • González Maestre Miguel

    ()
    (Universidad de Murcia)

  • Martínez Pardina Irene

    ()
    (Universidad de Murcia)

Abstract

Can an increasing number of firms and brands exacerbate problems related to asymmetric information on product quality?. This working paper analyzes this trade-off between variety and information using Salop's (1979) framework by introducing quality uncertainty and a simple information diffusion process. As the number of firms increases, the marginal benefits of lower prices and wider product variety may be outweighed by a reduction in consumer information and average quality. Thus, market expansions require a parallel improvement in information mechanisms. Because information has public good characteristics, it is an open question as to how efficiently the market may respond to this requirement.

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File URL: http://www.fbbva.es/TLFU/dat/dt_11_2010_web.pdf
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Bibliographic Info

Paper provided by Fundacion BBVA / BBVA Foundation in its series Working Papers with number 2010102.

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Length: 42
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:fbb:wpaper:2010102

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Keywords: Quality; asymmetric information; reputation; horizontal differentiation; market size.;

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