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Information and Quality in Expanding Markets

Listed author(s):
  • Alcalá Francisco



  • González Maestre Miguel


    (Universidad de Murcia)

  • Martínez Pardina Irene


    (Universidad de Murcia)

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.

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Paper provided by Fundacion BBVA / BBVA Foundation in its series Working Papers with number 2010102.

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Length: 42
Date of creation: Nov 2010
Handle: RePEc:fbb:wpaper:2010102
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