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Price as a Signal of Product Quality: Some Experimental Evidence

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  • Mastrobuoni, Giovanni
  • Peracchi, Franco
  • Tetenov, Aleksey

Abstract

We separate the budgetary and non-budgetary effects of price on demand using choice data from wine tasting experiments in which consumers tasted wines of different quality accompanied by fictitious price information. The non-budgetary effect is present and nonlinear: it is strongly positive between 3 and 5 euro, and undetectable between 5 and 8 euro. We find a similar nonlinear price-quality relationship in a large sample of wine ratings from the same price segment, supporting the hypothesis that consumer behavior in the experiment is consistent with rationally using prices as signals of quality. Price signals also have greater importance for inexperienced (young) consumers.
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Suggested Citation

  • Mastrobuoni, Giovanni & Peracchi, Franco & Tetenov, Aleksey, 2014. "Price as a Signal of Product Quality: Some Experimental Evidence," Journal of Wine Economics, Cambridge University Press, vol. 9(02), pages 135-152, August.
  • Handle: RePEc:cup:jwecon:v:9:y:2014:i:02:p:135-152_00
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    References listed on IDEAS

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    1. Héla Hadj Ali & Céline Nauges, 2007. "The Pricing of Experience Goods: The Example of en primeur Wine," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(1), pages 91-103.
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    3. Ali, Héla Hadj & Lecocq, Sébastien & Visser, Michael, 2010. "The Impact of Gurus: Parker Grades and en primeur Wine Prices," Journal of Wine Economics, Cambridge University Press, vol. 5(01), pages 22-39, March.
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    9. Philippe Mahenc, 2004. "Influence of Informed Buyers in Markets Susceptible to the Lemons Problem," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 649-659.
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    Cited by:

    1. Palma, David & Ortúzar, Juan de Dios & Rizzi, Luis Ignacio & Guevara, Cristian Angelo & Casaubon, Gerard & Ma, Huiqin, 2016. "Modelling choice when price is a cue for quality: a case study with Chinese consumers," Journal of choice modelling, Elsevier, vol. 19(C), pages 24-39.
    2. Gregory Colson & Jay R. Corrigan & Carola Grebitus & Maria L. Loureiro & Matthew C. Rousu, 2016. "Which Deceptive Practices, If Any, Should Be Allowed in Experimental Economics Research? Results from Surveys of Applied Experimental Economists and Students," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(2), pages 610-621.
    3. Palma, Marco A. & Ness, Meghan L. & Anderson, David P., 2015. "Buying More than Taste? A Latent Class Analysis of Health and Prestige Determinants of Healthy Food," 2015 Conference (59th), February 10-13, 2015, Rotorua, New Zealand 202566, Australian Agricultural and Resource Economics Society.
    4. Qihua Liu & Shan Huang & Liyi Zhang, 2016. "The influence of information cascades on online purchase behaviors of search and experience products," Electronic Commerce Research, Springer, vol. 16(4), pages 553-580, December.
    5. repec:eco:journ3:2017-04-4 is not listed on IDEAS
    6. Bonnet, Céline & Hilger, James & Villas-Boas, Sofia B., 2017. "Reduced Form Evidence on Belief Updating under Asymmetric Information - The Case of Wine Expert Opinions," TSE Working Papers 17-834, Toulouse School of Economics (TSE).
    7. Palma, Marco & Ness, Meghan & Anderson, David, 2015. "Prestige as a Determining Factor of Food Purchases," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196694, Southern Agricultural Economics Association.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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