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Product Differentiation with Imperfect Information

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  • Asher Wolinsky

Abstract

The paper employs a model of monopolistic competition and product differentiation with consumers who are not well informed about the specification of the offered brands. Welfare analysis of the degree of product differentiation in such a market concludes that the socially desirable product variety is limited due to consumers' imperfect information. Consequently, when the number of consumers is sufficiently large or economies to scale in production are sufficiently weak, the market would offer excessive variety.

Suggested Citation

  • Asher Wolinsky, 1984. "Product Differentiation with Imperfect Information," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 53-61.
  • Handle: RePEc:oup:restud:v:51:y:1984:i:1:p:53-61.
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    File URL: http://hdl.handle.net/10.2307/2297704
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    Cited by:

    1. Arbatskaya, Maria & Konishi, Hideo, 2012. "Referrals in search markets," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 89-101.
    2. Shin‐kun Peng, 2004. "Spatial Monopoly with Product Differentiation," Southern Economic Journal, John Wiley & Sons, vol. 70(3), pages 646-660, January.
    3. Jose Luis Moraga-Gonzalez & Zsolt Sandor & Matthijs R. Wildenbeest, 2008. "Nonparametric Estimation of the Costs of Non-Sequential Search," Tinbergen Institute Discussion Papers 07-102/1, Tinbergen Institute.
    4. Simon P. Anderson & Regis Renault, 1999. "Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 719-735, Winter.
    5. Schultz, Christian, 2009. "Transparency and product variety," Economics Letters, Elsevier, vol. 102(3), pages 165-168, March.
    6. Nils‐Henrik M. von der Fehr & Kristin Stevik, 1998. "Persuasive Advertising and Product Differentiation," Southern Economic Journal, John Wiley & Sons, vol. 65(1), pages 113-126, July.
    7. Braid, Ralph M., 1998. "Spatial price competition when stores are not certain to have what consumers want," Regional Science and Urban Economics, Elsevier, vol. 28(2), pages 143-161, March.
    8. Luca Macedoni, 2022. "Asymmetric information, quality, and regulations," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 1180-1198, September.
    9. Tse, Chung Yi, 2006. "New product introduction with costly search," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2775-2792, December.
    10. Gérard P. Cachon & Christian Terwiesch & Yi Xu, 2005. "Retail Assortment Planning in the Presence of Consumer Search," Manufacturing & Service Operations Management, INFORMS, vol. 7(4), pages 330-346, August.
    11. Simon P. Anderson & Régis Renault & Claude Jessua, 1996. "Produits différenciés et information imparfaite des consommateurs," Revue Économique, Programme National Persée, vol. 47(3), pages 425-435.
    12. G. E. Fruchter, 2009. "Signaling Quality: Dynamic Price-Advertising Model," Journal of Optimization Theory and Applications, Springer, vol. 143(3), pages 479-496, December.
    13. Schultz, Christian, 2004. "Market transparency and product differentiation," Economics Letters, Elsevier, vol. 83(2), pages 173-178, May.
    14. Chrysanthos Dellarocas & Zsolt Katona & William Rand, 2013. "Media, Aggregators, and the Link Economy: Strategic Hyperlink Formation in Content Networks," Management Science, INFORMS, vol. 59(10), pages 2360-2379, October.
    15. Bing Jing, 2007. "Product differentiation under imperfect information: When does offering a lower quality pay?," Quantitative Marketing and Economics (QME), Springer, vol. 5(1), pages 35-61, March.
    16. Gravelle, Hugh & Masiero, Giuliano, 2000. "Quality incentives in a regulated market with imperfect information and switching costs: capitation in general practice," Journal of Health Economics, Elsevier, vol. 19(6), pages 1067-1088, November.
    17. Fernando Bernstein & Victor Martínez-de-Albéniz, 2017. "Dynamic Product Rotation in the Presence of Strategic Customers," Management Science, INFORMS, vol. 63(7), pages 2092-2107, July.
    18. Thomas S. Conkling, 2020. "Compliance and competition with heterogeneous service providers: the federal Lifeline program," Journal of Regulatory Economics, Springer, vol. 57(1), pages 74-104, February.
    19. Tse, C.Y.Chung Yi, 2004. "Search frictions, market power, and long-run growth," Journal of Economic Theory, Elsevier, vol. 116(2), pages 323-346, June.

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