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Label Confusion: The Groucho Effect of Uncertain Standards

Author

Listed:
  • Rick Harbaugh

    () (Kelley School of Business, Indiana University, Bloomington, Indiana 47405)

  • John W. Maxwell

    () (Kelley School of Business, Indiana University, Bloomington, Indiana 47405)

  • Beatrice Roussillon

    () (Grenoble Applied Economic Laboratory, University of Grenoble, F-38000 Grenoble, France)

Abstract

Labels certify that a product meets some standard for quality, but often consumers are unsure of the exact standard that the label represents. Focusing on the case of ecolabels for environmental quality, we show how even small amounts of uncertainty can create consumer confusion that reduces or eliminates the value to firms of adopting voluntary labels. First, consumers are most suspicious of a label when a product with a bad reputation has it, so labels are often unpersuasive at showing that a seemingly bad product is actually good. Second, label proliferation aggravates the effect of uncertainty, causing the informativeness of labels to decrease rather than increase. Third, uncertainty makes labeling and nonlabeling equilibria more likely to coexist as the number of labels increases, so consumers face greater strategic uncertainty over how to interpret the presence or absence of a label. Finally, a label can be legitimitized or spoiled for other products when a product with a good or bad reputation displays it, so firms may adopt labels strategically to manipulate such information spillovers, which further exacerbates label confusion. Managers can reduce label confusion by supporting mandatory labeling or by undertaking investments to make certain labels "focal." This paper was accepted by Pradeep Chintagunta and Preyas Desai, special issue editors. This paper was accepted by Pradeep Chintagunta and Preyas Desai, special issue editors.

Suggested Citation

  • Rick Harbaugh & John W. Maxwell & Beatrice Roussillon, 2011. "Label Confusion: The Groucho Effect of Uncertain Standards," Management Science, INFORMS, vol. 57(9), pages 1512-1527, February.
  • Handle: RePEc:inm:ormnsc:v:57:y:2011:i:9:p:1512-1527
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    File URL: http://dx.doi.org/10.1287/mnsc.1110.1412
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Brécard, Dorothée, 2014. "Consumer confusion over the profusion of eco-labels: Lessons from a double differentiation model," Resource and Energy Economics, Elsevier, vol. 37(C), pages 64-84.
    2. Fabrice Etilé & Sabrina Teyssier, 2012. "Signaling Corporate Social Responsibility: Third-Party Certification vs. Brands," Working Papers halshs-00736551, HAL.
    3. Mohamed Akli Achabou & Adel Rink, 2014. "Barrières et motivations pour la consommation des produits de la mode éthique en France," Working Papers 2014-138, Department of Research, Ipag Business School.
    4. Zhao, Rui & Zhou, Xiao & Han, Jiaojie & Liu, Chengliang, 2016. "For the sustainable performance of the carbon reduction labeling policies under an evolutionary game simulation," Technological Forecasting and Social Change, Elsevier, vol. 112(C), pages 262-274.
    5. Olivier Bonroy & Christos Constantatos, 2015. "On the Economics of Labels: How Their Introduction Affects the Functioning of Markets and the Welfare of All Participants," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 239-259.
    6. Mika Kortelainen & Jibonayan Raychaudhuri & Beatrice Roussillon, 2016. "Effects Of Carbon Reduction Labels: Evidence From Scanner Data," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1167-1187, April.
    7. repec:bla:jindec:v:65:y:2017:i:2:p:309-335 is not listed on IDEAS
    8. Pierre Fleckinger & Matthieu Glachant & Gabrielle Moineville, 2017. "Incentives for Quality in Friendly and Hostile Informational Environments," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 242-274, February.
    9. repec:gbl:wpaper:2013-01 is not listed on IDEAS
    10. Carmen Arguedas & Esther Blanco, 2014. "Incentives for Voluntary Practices, Fraud, and Certification," Working Papers 2014-18, Faculty of Economics and Statistics, University of Innsbruck.
    11. Claudia E. Henninger, 2015. "Traceability the New Eco-Label in the Slow-Fashion Industry?—Consumer Perceptions and Micro-Organisations Responses," Sustainability, MDPI, Open Access Journal, vol. 7(5), pages 1-22, May.
    12. Saak, Alexander E., 2016. "Delegation of quality control in value chains:," IFPRI discussion papers 1526, International Food Policy Research Institute (IFPRI).
    13. Saak, Alexander E., 2016. "The Value of Delegated Quality Control and Market Size with an Application to Kyrgyzstan Dairy," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235707, Agricultural and Applied Economics Association.
    14. Fabrice Etilé & Sabrina Teyssier, 2012. "Signaling Corporate Social Responsibility: Third-Party Certification vs. Brands," PSE Working Papers halshs-00736551, HAL.
    15. Etilé, Fabrice & Teyssier, Sabrina, 2013. "Corporate social responsibility and the economics of consumer social responsibility," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 94(02), pages 221-259, June.
    16. Ramona Weinrich & Annabell Franz & Achim Spiller, 2016. "Multi-level labelling: too complex for consumers?," ECONOMIA AGRO-ALIMENTARE, FrancoAngeli Editore, vol. 18(2), pages 155-172.
    17. Thomas Lyon & A. Montgomery, 2013. "Tweetjacked: The Impact of Social Media on Corporate Greenwash," Journal of Business Ethics, Springer, vol. 118(4), pages 747-757, December.
    18. repec:gam:jsusta:v:10:y:2018:i:5:p:1494-:d:145347 is not listed on IDEAS
    19. Sihem Dekhili & Mohamed Achabou, 2015. "The Influence of the Country-of-Origin Ecological Image on Ecolabelled Product Evaluation: An Experimental Approach to the Case of the European Ecolabel," Journal of Business Ethics, Springer, vol. 131(1), pages 89-106, September.
    20. Pio Baake & Helene Naegele, 2017. "Competition between For-Profit and Industry Labels: The Case of Social Labels in the Coffee Market," Discussion Papers of DIW Berlin 1686, DIW Berlin, German Institute for Economic Research.
    21. Pavel Castka & Charles J. Corbett, 2016. "Governance of Eco-Labels: Expert Opinion and Media Coverage," Journal of Business Ethics, Springer, vol. 135(2), pages 309-326, May.
    22. Dorothée Brécard, 2017. "Consumer misperception of eco-labels, green market structure and welfare," Journal of Regulatory Economics, Springer, vol. 51(3), pages 340-364, June.
    23. Arguedas, Carmen & Blanco, Esther, 2014. "On Fraud and Certification of Corporate Social Responsibility," Working Papers in Economic Theory 2014/02, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    24. Fabrice Etilé & Sabrina Teyssier, 2012. "Signaling Corporate Social Responsibility: Third-Party Certification vs. Brands," PSE - Labex "OSE-Ouvrir la Science Economique" halshs-00736551, HAL.

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