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What is in a price? Evidence on quality signaling for experience goods

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  • Daniela Rroshi

    (Department of Economics, Vienna University of Economics and Business)

  • Michael Weichselbaumer

    (Department of Economics, Vienna University of Economics and Business)

Abstract

We study the effect of quality disclosure on prices using quality tests released by the main consumer protection agency in Germany. Both durable and non-durable consumer products are covered, representing about 5 percent of weighted expenditures for all products in the German CPI. Cross-section results of the price-quality relation before quality disclosure show that higher prices are positively correlated with higher quality for durable goods, and negatively correlated for non-durable goods; both results are in line with theoretical models of price signaling. In the dynamic analysis, we employ a RD-type approach around publication of the quality evaluation for identification. Results show a positive effect of quality disclosure on prices for high quality durable products and a negative effect for low quality products suggesting that the information improves matching. Opposite results hold for non-durable products. Survival estimates show that products of low quality leave the market earlier.

Suggested Citation

  • Daniela Rroshi & Michael Weichselbaumer, 2021. "What is in a price? Evidence on quality signaling for experience goods," Department of Economics Working Papers wuwp311, Vienna University of Economics and Business, Department of Economics.
    • Handle: RePEc:wiw:wiwwuw:wuwp311
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    More about this item

    Keywords

    Asymmetric Information; Consumer Protection; Quality Disclosure;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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