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Price and Advertising Signals of Product Quality

Author

Listed:
  • Paul R. Milgrom
  • John Roberts

    (Stanford University)

Abstract

We present a signalling model, based on ideas of Phillip Nelson, in which both the introductory price and the level of directly "uninformative" advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good. Repeat purchases play a crucial role in our model.

Suggested Citation

  • 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.
  • Handle: RePEc:cwl:cwldpp:709
    Note: CFP 676.
    as

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    References listed on IDEAS

    as
    1. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
    2. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-329, March-Apr.
    3. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-1037, September.
    4. Moulin, Herve, 1979. "Dominance Solvable Voting Schemes," Econometrica, Econometric Society, vol. 47(6), pages 1137-1151, November.
    5. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-359, March.
    6. Benjamin Klein & Keith B. Leffler, 1980. "Non-Governmental Enforcement of Contracts: The Role of Market Forces in Assuring Quality," UCLA Economics Working Papers 177, UCLA Department of Economics.
    7. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-450, June.
    8. Wilson, Robert, 1985. "Multi-dimensional signalling," Economics Letters, Elsevier, vol. 19(1), pages 17-21.
    Full references (including those not matched with items on IDEAS)

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