Advertising, quality, and willingness-to-pay: Experimental examination of signaling theory
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Berrens, Robert P. & Bohara, Alok K. & Jenkins-Smith, Hank C. & Silva, Carol L. & Weimer, David L., 2004. "Information and effort in contingent valuation surveys: application to global climate change using national internet samples," Journal of Environmental Economics and Management, Elsevier, vol. 47(2), pages 331-363, March.
- Milgrom, Paul & Roberts, John, 1986.
"Price and Advertising Signals of Product Quality,"
Journal of Political Economy,
University of Chicago Press, vol. 94(4), pages 796-821, August.
- Hoehn, John P. & Randall, Alan, 1987. "A satisfactory benefit cost indicator from contingent valuation," Journal of Environmental Economics and Management, Elsevier, vol. 14(3), pages 226-247, September.
- Kirmani, Amna & Wright, Peter, 1989. " Money Talks: Perceived Advertising Expense and Expected Product Quality," Journal of Consumer Research, University of Chicago Press, vol. 16(3), pages 344-53, December.
- Dittmar, Helga & Beattie, Jane & Friese, Susanne, 1995. "Gender identity and material symbols: Objects and decision considerations in impulse purchases," Journal of Economic Psychology, Elsevier, vol. 16(3), pages 491-511, September.
- Caves, Richard E. & Greene, David P., 1996. "Brands' quality levels, prices, and advertising outlays: empirical evidence on signals and information costs," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 29-52.
- Schmalensee, Richard, 1978. "A Model of Advertising and Product Quality," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 485-503, June.
- Kirmani, Amna, 1990. " The Effect of Perceived Advertising Costs on Brand Perceptions," Journal of Consumer Research, University of Chicago Press, vol. 17(2), pages 160-71, September.
- Cameron, Trudy Ann & James, Michelle D, 1987.
"Efficient Estimation Methods for "Closed-ended' Contingent Valuation Surveys,"
The Review of Economics and Statistics,
MIT Press, vol. 69(2), pages 269-76, May.
- Trudy Ann Cameron & Michelle D. James, 1986. "Efficient Estimation Methods for "Closed-Ended" Contingent Valuation Surveys," UCLA Economics Working Papers 404, UCLA Department of Economics.
- Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
- Wolinsky, Asher, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 647-58, October.
- Azar, Ofer H., 2011. "Do people think about absolute or relative price differences when choosing between substitute goods?," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 450-457, June.
- Hao Zhao, 2000. "Raising Awareness and Signaling Quality to Uninformed Consumers: A Price-Advertising Model," Marketing Science, INFORMS, vol. 19(4), pages 390-396, January.
- Claude Fluet & Paolo G. Garella, 1999.
"Advertising and Prices as Signals of Quality in a Regime of Price Rivalry,"
Cahiers de recherche du Département des sciences économiques, UQAM
9903, Université du Québec à Montréal, Département des sciences économiques.
- Fluet, Claude & Garella, Paolo G., 2002. "Advertising and prices as signals of quality in a regime of price rivalry," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 907-930, September.
- Cameron, Trudy Ann, 1988. "A new paradigm for valuing non-market goods using referendum data: Maximum likelihood estimation by censored logistic regression," Journal of Environmental Economics and Management, Elsevier, vol. 15(3), pages 355-379, September.
- Kanninen Barbara J., 1995. "Bias in Discrete Response Contingent Valuation," Journal of Environmental Economics and Management, Elsevier, vol. 28(1), pages 114-125, January.
- Anna Alberini, 1995. "Testing Willingness-to-Pay Models of Discrete Choice Contingent Valuation Survey Data," Land Economics, University of Wisconsin Press, vol. 71(1), pages 83-95.
When requesting a correction, please mention this item's handle: RePEc:eee:joepsy:v:33:y:2012:i:6:p:1193-1203. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.