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Information and Quality in Expanding Markets

Author

Listed:
  • Alcalá Francisco

    () (UNIVERSITY OF MURCIA VALENCIAN ECONOMIC RESEARCH INSTITUTE (Ivie))

  • González Maestre Miguel

    () (Universidad de Murcia)

  • Martínez Pardina Irene

    () (Universidad de Murcia)

Abstract

Can an increasing number of firms and brands exacerbate problems related to asymmetric information on product quality?. This working paper analyzes this trade-off between variety and information using Salop's (1979) framework by introducing quality uncertainty and a simple information diffusion process. As the number of firms increases, the marginal benefits of lower prices and wider product variety may be outweighed by a reduction in consumer information and average quality. Thus, market expansions require a parallel improvement in information mechanisms. Because information has public good characteristics, it is an open question as to how efficiently the market may respond to this requirement.

Suggested Citation

  • Alcalá Francisco & González Maestre Miguel & Martínez Pardina Irene, 2010. "Information and Quality in Expanding Markets," Working Papers 2010102, Fundacion BBVA / BBVA Foundation.
  • Handle: RePEc:fbb:wpaper:2010102
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    File URL: http://www.fbbva.es/TLFU/dat/dt_11_2010_web.pdf
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    Keywords

    Quality; asymmetric information; reputation; horizontal differentiation; market size.;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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