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Beneficial consumer fraud

  • Silvia Martínez-Gorricho

    ()

    (Dpto. Análisis Económico Aplicado)

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    This article considers a two-sided private information model. We assume that two exogenouslygiven qualities are offered in a monopolistic market. Prices are fixed. A low quality seller choosesto be either honest (by charging the lower market price) or dishonest (by charging the higherprice). We discuss the signalling role of consumers’ information on the equilibrium level ofdishonesty, incidence of fraud and trade. We demonstrate that the equilibrium incidence offraud is non-monotonic in information. This result holds as long as information is noisy andregardless of its private or public nature. Welfare consequences are ambiguous.

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2012-13.pdf
    File Function: Fisrt version / Primera version, 2012
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    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2012-13.

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    Length: 65 pages
    Date of creation: Apr 2012
    Date of revision:
    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasad:2012-13
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    1. Voorneveld, Mark & Weibull, Jörgen W., 2004. "Prices and quality signals," SSE/EFI Working Paper Series in Economics and Finance 551, Stockholm School of Economics, revised 08 Mar 2004.
    2. Mark Armstrong & John Vickers & Jidong Zhou, 2009. "Consumer Protection and the Incentive to Become Informed," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 399-410, 04-05.
    3. Bester, Helmut & Ritzberger, Klaus, 1998. "Strategic Pricing, Signalling and Costly Information Acquisition," CEPR Discussion Papers 2032, C.E.P.R. Discussion Papers.
    4. Taylor, Curtis R, 1995. "The Economics of Breakdowns, Checkups, and Cures," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 53-74, February.
    5. Edward E. Schlee, 1996. "The Value of Information About Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 803-815, Winter.
    6. Mark N. Hertzendorf, 1993. "I'm Not a High-Quality Firm -- But I Play One on TV," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 236-247, Summer.
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