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Differentiated credence goods and price competition

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  • Gabszewicz, Jean J.
  • Resende, Joana

Abstract

This paper analyses price competition between two firms producing horizontally and vertically differentiated goods. These are assumed to be credence goods, as consumers can hardly ascertain the quality of the commodities. To illustrate the model, we adapt it to represent a newspaper industry with two outlets, when the population of readers have preferences both on the political stance of the newspapers and on the accuracy of the news they dispatch.

Suggested Citation

  • Gabszewicz, Jean J. & Resende, Joana, 2012. "Differentiated credence goods and price competition," Information Economics and Policy, Elsevier, vol. 24(3), pages 277-287.
    • Handle: RePEc:eee:iepoli:v:24:y:2012:i:3:p:277-287
    DOI: 10.1016/j.infoecopol.2012.09.001
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    References listed on IDEAS

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    1. Gabszewicz, Jean J. & Laussel, Dider & Sonnac, Nathalie, 2001. "Press advertising and the ascent of the 'Pensee Unique'," European Economic Review, Elsevier, vol. 45(4-6), pages 641-651, May.
    2. Olivier Bonroy & Christos Constantatos, 2008. "On the use of labels in credence goods markets," Journal of Regulatory Economics, Springer, vol. 33(3), pages 237-252, June.
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    6. Matthew Gentzkow & Jesse M. Shapiro, 2006. "Media Bias and Reputation," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 280-316, April.
    7. Matthew Ellman & Fabrizio Germano, "undated". "What Do the Papers Sell?," Working Papers 149, Barcelona School of Economics.
    8. Gabszewicz, Jean J & Grilo, Isabel, 1992. "Price Competition When Consumers Are Uncertain about Which Firm Sells Which Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 629-650, Winter.
    9. Sendhil Mullainathan & Andrei Shleifer, 2005. "The Market for News," American Economic Review, American Economic Association, vol. 95(4), pages 1031-1053, September.
    10. Stefan Behringer & Lapo Filistrucchi, 2009. "Price Wars in Two-Sided Markets: The case of the UK Quality Newspapers," Working Papers 09-26, NET Institute, revised Dec 2009.
    11. Daughety, Andrew F. & Reinganum, Jennifer F., 2007. "Competition and confidentiality: Signaling quality in a duopoly when there is universal private information," Games and Economic Behavior, Elsevier, vol. 58(1), pages 94-120, January.
    12. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    13. Matthew Ellman & Fabrizio Germano, 2009. "What do the Papers Sell? A Model of Advertising and Media Bias," Economic Journal, Royal Economic Society, vol. 119(537), pages 680-704, April.
    14. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Imperfect competition and quality signalling," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 163-183, March.
    15. Dan Levin & James Peck & Lixin Ye, 2009. "Quality Disclosure And Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 167-196, March.
    16. Baron, David P., 2006. "Persistent media bias," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 1-36, January.
    17. Sendhil Mullainathan & Andrei Shleifer, 2005. "The Market for News," American Economic Review, American Economic Association, vol. 95(4), pages 1031-1053, September.
    18. Armstrong, Mark, 2008. "Interactions between competition and consumer policy," MPRA Paper 7258, University Library of Munich, Germany.
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    Citations

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    Cited by:

    1. Helmut Bester & Matthias Dahm, 2018. "Credence Goods, Costly Diagnosis and Subjective Evaluation," Economic Journal, Royal Economic Society, vol. 128(611), pages 1367-1394, June.
    2. Ludwig von Auer & Mark Trede, 2018. "Markets with technological progress: pricing, quality, and novelty," Journal of Economics, Springer, vol. 124(2), pages 121-137, June.
    3. Sendhil Mullainathan & Andrei Shleifer, 2005. "The Market for News," American Economic Review, American Economic Association, vol. 95(4), pages 1031-1053, September.
    4. Bester, Helmut & Ouyang, Yaofu, 2018. "Optimal procurement of a credence good under limited liability," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 96-129.
    5. A. Cavaliere & G. Crea, 2022. "Brand premia driven by perceived vertical differentiation in markets with information disparity and optimistic consumers," Journal of Economics, Springer, vol. 135(3), pages 223-253, April.

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    More about this item

    Keywords

    Product differentiation; Credence goods; Media economics;
    All these keywords.

    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
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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