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Investments in Quality, Collective Reputation and Information Acquisition

Author

Listed:
  • Fulvio Fontini

    (Department of Economics and Management, University of Padua, Italy)

  • Katrin Millock

    (Paris School of Economics, CNRS, Centre d’Economie de la Sorbonne)

  • Michele Moretto

    (Department of Economics and Management, University of Padua, Italy)

Abstract

In many cases consumers cannot observe firms’ investment in quality or safety, but have only beliefs on the average quality of the industry. In addition, the outcome of the collective investment game of the firms may be stochastic since firms cannot control perfectly the technology or external factors that may affect production. In such situations, when only consumers’ subjective perceptions of the industry level of quality matter, the regulator may make information available to firms or subsidize their information acquisition. Under what conditions is it desirable to make information available? We show how firms’ overall level of investment in quality depends upon the parameters of the quality accumulation process, the cost of investment and the number of firms in the industry. We also show the potentially negative effects on the total level of quality from providing information on consumers’ actual valuation.

Suggested Citation

  • Fulvio Fontini & Katrin Millock & Michele Moretto, 2013. "Investments in Quality, Collective Reputation and Information Acquisition," Working Papers 2013.53, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2013.53
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    1. repec:spr:envpol:v:20:y:2018:i:2:d:10.1007_s10018-017-0198-1 is not listed on IDEAS

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    Keywords

    Collective Reputation; Option Value; Quality;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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