Quality choice, signalling, and moral hazard
In this paper it is argued that prices should not reveal the quality of the good to the consumers, when there is asymmetric information about quality between the firm and the consumers, and the firm can affect the quality of its product. Instead, prices should be completely uninformative, so that firms are able to make larger investments to improve the quality, and increase the expected utility of the consumers.
Volume (Year): 3 (1990)
Issue (Month): 2 (Autumn)
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- Paul R. Milgrom & John Roberts, 1984.
"Price and Advertising Signals of Product Quality,"
Cowles Foundation Discussion Papers
709, Cowles Foundation for Research in Economics, Yale University.
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