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Advertising, quality, and willingness-to-pay: Experimental examination of signaling theory

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  • Tsui, Hsiao-Chien

Abstract

According to the quality signaling theory, firms are motivated to invest more advertising in high-quality products. This paper conducts an experiment through a closed-ended double-bounded dichotomous choice of the contingent valuation method to measure consumer willingness-to-pay for a fictitious cell phone market of varying quality before and after advertising. The results show that advertising effectively influences consumer awareness of perceived quality and enhance their WTP. The results also suggest that even though the high- and low-quality products differ in the investment of advertising, the effect of advertising on the increase in consumer WTP for low-quality products as well as for high-quality products.

Suggested Citation

  • Tsui, Hsiao-Chien, 2012. "Advertising, quality, and willingness-to-pay: Experimental examination of signaling theory," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1193-1203.
    • Handle: RePEc:eee:joepsy:v:33:y:2012:i:6:p:1193-1203
    DOI: 10.1016/j.joep.2012.08.011
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    More about this item

    Keywords

    Advertising effect; Quality; Willingness-to-pay; Contingent valuation method;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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