Consumer Uncertainty about which Firm Sells the High Quality: on the Slow Penetration of Some Credence Goods
AbstractIn this paper, we analyze cases where consumers are aware of the existence of two qualities but do not know which firm sells the good one. We show that if the production of the high quality requires higher cost, its producer may be severly disadvantaged, even if the additional utility fully justifies the extra cost. We even show cases where all consumers beliefs are in favour of the efficient high quality producer, yet it is its inefficient rival that monopolizes the market! This result explains the slow penetration of some credence goods like environementally friendly products, organic vegetables, etc. It also makes an urgent call for labelling this kind of products.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by GREEN in its series Cahiers de recherche with number 0307.
Date of creation: 2003
Date of revision:
Contact details of provider:
Postal: Bureau 2245, Pavillon J.-A.-DeSève, Québec (Québec) G1K 7P4
Phone: (418) 656-2096
Fax: (418) 656-7412
Web page: http://www.green.ecn.ulaval.ca
More information through EDIRC
Incomplete information; quality; asymetric costs;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-08-31 (All new papers)
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.:
- Jean J. Gabszewicz & Isabel Grilo, 1992.
"Price Competition When Consumersare Uncertain About Which Firm Sells Which Quality,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 1(4), pages 629-650, December.
- Gabszewicz, Jean J & Grilo, Isabel, 1992. "Price Competition When Consumers Are Uncertain about Which Firm Sells Which Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 629-50, Winter.
- GABSZEWICZ, Jean J. & GRILO, Isabel, . "Price competition when consumers are uncertain about which firm sells which quality," CORE Discussion Papers RP -1055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
- Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johanne Perron).
If references are entirely missing, you can add them using this form.