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A Bayesian approach to the evaluation of stochastic signals of product quality

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  • Hudson, John

Abstract

This paper explores consumers' use of stochastic signals of product quality from a Bayesian perspective. Stochastic signals are implicit in many of the analyses on signal usage in the marketing literature and yet formal analysis of their use has been relatively limited. The basis for our analysis is a seminal paper by Winkler on combining experts' forecasts into a single consensus distribution, together with the resulting literature to which this has given rise. This is a substantial body of literature and represents a readily available fund of results which can be used within the marketing context. Hence, it is shown that the weights on different signals will be inversely related to the variance of the signal and need not be convex. It is also shown that for repeatedly purchased goods, signals will play a decreasing role as the consumer gains experience of the good.

Suggested Citation

  • Hudson, John, 2000. "A Bayesian approach to the evaluation of stochastic signals of product quality," Omega, Elsevier, vol. 28(5), pages 599-607, October.
  • Handle: RePEc:eee:jomega:v:28:y:2000:i:5:p:599-607
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    References listed on IDEAS

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    1. Jones, Philip & Hudson, John, 1996. "Signalling product quality: When is price relevant?," Journal of Economic Behavior & Organization, Elsevier, vol. 30(2), pages 257-266, August.
    2. Tülin Erdem & Michael P. Keane, 1996. "Decision-Making Under Uncertainty: Capturing Dynamic Brand Choice Processes in Turbulent Consumer Goods Markets," Marketing Science, INFORMS, vol. 15(1), pages 1-20.
    3. Robert L. Winkler, 1981. "Combining Probability Distributions from Dependent Information Sources," Management Science, INFORMS, vol. 27(4), pages 479-488, April.
    4. 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.
    5. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    6. Andrews, Rick L., 1992. "Economics of information and heterogeneous products," Journal of Economic Psychology, Elsevier, vol. 13(3), pages 399-420, September.
    7. Hong, Sung-Tai & Wyer, Robert S, Jr, 1989. " Effects of Country-of-Origin and Product-Attribute Information on Product Evaluation: An Information Processing Perspective," Journal of Consumer Research, Oxford University Press, vol. 16(2), pages 175-187, September.
    8. Archibald, Robert B & Haulman, Clyde A & Moody, Carlisle E, Jr, 1983. " Quality, Price, Advertising, and Published Quality Ratings," Journal of Consumer Research, Oxford University Press, vol. 9(4), pages 347-356, March.
    9. Rao, Akshay R & Monroe, Kent B, 1988. " The Moderating Effect of Prior Knowledge on Cue Utilization in Product Evaluations," Journal of Consumer Research, Oxford University Press, vol. 15(2), pages 253-264, September.
    10. Purushottam Papatla & Lakshman Krishnamurthi, 1992. "A Probit Model of Choice Dynamics," Marketing Science, INFORMS, vol. 11(2), pages 189-206.
    11. Jones, Philip & Hudson, John, 1996. "Standardization and the costs of assessing quality," European Journal of Political Economy, Elsevier, vol. 12(2), pages 355-361, September.
    12. Maute, Manfred F. & Forrester, William Jr., 1991. "The effect of attribute qualities on consumer decision making: a causal model of external information search," Journal of Economic Psychology, Elsevier, vol. 12(4), pages 643-666, December.
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    Cited by:

    1. Hudson, John, 2009. "Talking up Social Capital:An Analysis of Social Voice," Department of Economics Working Papers 15972, University of Bath, Department of Economics.
    2. repec:eid:wpaper:6/09 is not listed on IDEAS
    3. Noll, Juergen, 2004. "Comparing quality signals as tools of consumer protection: are warranties always better than advertisements to promote higher product quality?," International Review of Law and Economics, Elsevier, vol. 24(2), pages 227-239, June.

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