Beneficial consumer fraud
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.
|Date of creation:||Apr 2012|
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- Armstrong, Mark & Vickers, John & Zhou, Jidong, 2008.
"Consumer protection and the incentive to become informed,"
9898, University Library of Munich, Germany.
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- 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.
- 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.
- 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.
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