Investments in Quality, Collective Reputation and Information Acquisition
AbstractIn many cases consumers cannot observe firms’ investment in quality or safety, but have only beliefs on the average quality of the industry. In addition, the outcome of the collective investment game of the firms may be stochastic since firms cannot control perfectly the technology or external factors that may affect production. In such situations, when only consumers’ subjective perceptions of the industry level of quality matter, the regulator may make information available to firms or subsidize their information acquisition. Under what conditions is it desirable to make information available? We show how firms’ overall level of investment in quality depends upon the parameters of the quality accumulation process, the cost of investment and the number of firms in the industry. We also show the potentially negative effects on the total level of quality from providing information on consumers’ actual valuation.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2013.53.
Date of creation: May 2013
Date of revision:
Collective Reputation; Option Value; Quality;
Other versions of this item:
- Fulvio Fontini & Katrin Millock & Michele Moretto, 2013. "Investments in Quality, Collective Reputation and Information Acquisition," Documents de travail du Centre d'Economie de la Sorbonne 13044, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Fulvio Fontini & Katrin Millock & Michele Moretto, 2013. "Investments in Quality, Collective Reputation and Information Acquisition," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00825782, HAL.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
- NEP-CTA-2013-07-15 (Contract Theory & Applications)
- NEP-MIC-2013-07-15 (Microeconomics)
- NEP-ORE-2013-07-15 (Operations Research)
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