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Quality over-provision of information goods

Author

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  • Xiaopeng Xu

    () (University of California-Berkeley)

Abstract

This paper studies a producer's quality choice of an information good. The marginal cost of quality provision for the good is decreasing. The buyer does not observe the actual quality but can learn a signal which is the sum of quality and a noise. It shows that the producer has an incentive to over-supply quality. Moreover, and interestly, all types of producer may over-supply quality.

Suggested Citation

  • Xiaopeng Xu, 2002. "Quality over-provision of information goods," Economics Bulletin, AccessEcon, vol. 12(5), pages 1-9.
  • Handle: RePEc:ebl:ecbull:eb-02l10001
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    References listed on IDEAS

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    1. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
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    3. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    4. Dale W. Jorgenson, 2001. "Information Technology and the U.S. Economy," American Economic Review, American Economic Association, vol. 91(1), pages 1-32, March.
    5. von Ungern-Sternberg, Thomas & von Weizsacker, Carl Christian, 1985. "The Supply of Quality on a Market for "Experience Goods."," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 531-551, June.
    6. MacLeod, W Bentley & Malcomson, James M, 1988. "Reputation and Hierarchy in Dynamic Models of Employment," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 832-854, August.
    7. Mehmet Bac, 2000. "Switching costs and screening efficiency of incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 1034-1048, November.
    8. Chen, Yongmin, 2000. "Promises, Trust, and Contracts," Journal of Law, Economics, and Organization, Oxford University Press, vol. 16(1), pages 209-232, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Information goods;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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