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Communicating quality: a unified model of disclosure and signalling

Listed author(s):
  • Andrew F. Daughety
  • Jennifer F. Reinganum

Firms communicate product quality to consumers through a variety of channels. Economic models of such communication take two alternative forms when quality is exogenous: (i) disclosure of quality through a credible direct claim; or (ii) signalling of quality via producer actions that influence buyers' beliefs about quality. In general, these two literatures have ignored one another. We argue that firms should be viewed as choosing which means of communication they will employ. We show that integration of these two alternatives leads to new implications about disclosure, signalling, firm preferences over type, and the social efficiency of the channel of communication employed. Copyright (c) 2008, RAND.

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Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 4 ()
Pages: 973-989

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Handle: RePEc:bla:randje:v:39:y:2008:i:4:p:973-989
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  1. Esther Gal-Or, 1989. "Warranties as a Signal of Quality," Canadian Journal of Economics, Canadian Economics Association, vol. 22(1), pages 50-61, February.
  2. Helmut Bester, 1998. "Quality Uncertainty Mitigates Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 828-844, Winter.
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  8. Oliver Board, 2009. "COMPETITION AND DISCLOSURE -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 197-213, 03.
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  11. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-450, June.
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  16. Kyle Bagwell & Michael Riordan, 1988. "High and Declining Prices Signal Product Quality," Discussion Papers 808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Imperfect competition and quality signalling," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 163-183.
  18. Kyle Bagwell, 1991. "Pricing to Signal Product Line Quality," Discussion Papers 921, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  19. Steven Matthews & Andrew Postlewaite, 1985. "Quality Testing and Disclosure," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 328-340, Autumn.
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  21. Michael J. Fishman & Kathleen M. Hagerty, 2003. "Mandatory Versus Voluntary Disclosure in Markets with Informed and Uninformed Customers," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 45-63, April.
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