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Communicating quality: a unified model of disclosure and signalling

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  • Andrew F. Daughety
  • Jennifer F. Reinganum

Abstract

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.

Suggested Citation

  • Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Communicating quality: a unified model of disclosure and signalling," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 973-989.
  • Handle: RePEc:bla:randje:v:39:y:2008:i:4:p:973-989
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    References listed on IDEAS

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    More about this item

    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
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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