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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 use experimental data to disentangle the signaling and budgetary effects of price on wine demand. The experimental design allows us to isolate the two effects in a simple and intuitive way. The signaling effect is present and nonlinear: it is strongly positive between 3 euros and 5 euros and undetectable between 5 euros and 8 euros. We find a similar nonlinear price–quality relationship in a large sample of wine ratings from the same price segment, supporting the hypothesis that taster behavior in the experiment is consistent with rationally using prices as signals of quality. Price signals also have greater importance for inexperienced (young) consumers. (JEL Classification: D11, D12, D82)

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(2), pages 135-152, August.
    • Handle: RePEc:cup:jwecon:v:9:y:2014:i:02:p:135-152_00
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    Cited by:

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    2. 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.
    3. Clarissa Laura Maria Spiess Bru, 2023. "Does the Tasting Note Matter? Language Categories and Their Impact on Professional Ratings and Prices," Working Papers Dissertations 105, Paderborn University, Faculty of Business Administration and Economics.
    4. Jimenez Mori, Raul, 2021. "It’s not price; It’s quality. Satisfaction and price fairness perception," World Development, Elsevier, vol. 139(C).
    5. Jonathan Willner, 2019. "Private Universities and NCAA D-III Athletics as a General Recruiting Tool," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 25(3), pages 293-307, August.
    6. Umbas Krisnanto, 2017. "Purchase Behavior of Rare Products: The Case of Vespa in Indonesia," International Review of Management and Marketing, Econjournals, vol. 7(4), pages 26-33.
    7. 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), revised May 2019.
    8. 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.
    9. 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.
    10. 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.
    11. Tian, Jing & Chen, Rong & Xu, Xiaobing, 2022. "A good way to boost sales? Effects of the proportion of sold-out options on purchase behavior," International Journal of Research in Marketing, Elsevier, vol. 39(1), pages 156-169.
    12. Kavita Sharma & Shivani Garg, 2016. "An Investigation into Consumer Search and Evaluation Behaviour: Effect of Brand Name and Price Perceptions," Vision, , vol. 20(1), pages 24-36, March.
    13. 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.
    14. Marco A. Palma & Meghan L. Ness & David P. Anderson, 2017. "Fashionable food: a latent class analysis of social status in food purchases," Applied Economics, Taylor & Francis Journals, vol. 49(3), pages 238-250, January.

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    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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