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The Demand for Tests

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  • Thomas Liebi
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    Abstract

    Many consumption goods have inherent attributes that are unknown to both consumers and producers of the good. This is reflected for example by the current discussion about potential harms of food products containing genetically modified organisms. The underlying paper analyzes consumers' demand for product tests in a surrounding of symmetric but imperfect information. It is shown that the demand for information of existing customers is higher than that of potential new ones. In addition, the introduction of an information market unambiguously lowers the product price. This is true, even though expected positive or negative quality news is symmetric in terms of monetary valuation.

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    File URL: http://www.vwl.unibe.ch/papers/dp/dp0307.pdf
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    Bibliographic Info

    Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0307.

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    Date of creation: May 2003
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    Handle: RePEc:ube:dpvwib:dp0307

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    Keywords: tests; imperfect; quality information; product quality;

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    1. Bester, Helmut & Ritzberger, Klaus, 1998. "Strategic Pricing, Signalling and Costly Information Acquisition," CEPR Discussion Papers 2032, C.E.P.R. Discussion Papers.
    2. Jones, Philip & Hudson, John, 1996. "Signalling product quality: When is price relevant?," Journal of Economic Behavior & Organization, Elsevier, vol. 30(2), pages 257-266, August.
    3. Russell Cooper & Thomas W. Ross, 1984. "Monopoly Provision of Product Quality with Uninformed Buyers," Cowles Foundation Discussion Papers 688R, Cowles Foundation for Research in Economics, Yale University, revised Nov 1984.
    4. Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
    5. Thomas Liebi, 2002. "Monitoring Eco-Labels: You Can Have Too Much of a Good Thing," Diskussionsschriften dp0207, Universitaet Bern, Departement Volkswirtschaft.
    6. Riordan, Michael H, 1986. "Monopolistic Competition with Experience Goods," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 265-79, May.
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