Consumer Uncertainty about which Firm Sells the High Quality: on the Slow Penetration of Some Credence Goods
In this paper, we analyze cases where consumers are aware of the existence of two qualities but do not know which firm sells the good one. We show that if the production of the high quality requires higher cost, its producer may be severly disadvantaged, even if the additional utility fully justifies the extra cost. We even show cases where all consumers beliefs are in favour of the efficient high quality producer, yet it is its inefficient rival that monopolizes the market! This result explains the slow penetration of some credence goods like environementally friendly products, organic vegetables, etc. It also makes an urgent call for labelling this kind of products.
|Date of creation:||2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (418) 656-2096
Fax: (418) 656-7412
Web page: http://www.green.ecn.ulaval.ca
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- GABSZEWICZ, Jean J. & GRILO, Isabel, .
"Price competition when consumers are uncertain about which firm sells which quality,"
CORE Discussion Papers RP
-1055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Gabszewicz, Jean J & Grilo, Isabel, 1992. "Price Competition When Consumers Are Uncertain about Which Firm Sells Which Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 629-50, Winter.
- Jean J. Gabszewicz & Isabel Grilo, 1992. "Price Competition When Consumersare Uncertain About Which Firm Sells Which Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 629-650, December.
- Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
- Carl Shapiro, 1983. "Optimal Pricing of Experience Goods," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 497-507, Autumn.
- Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
When requesting a correction, please mention this item's handle: RePEc:lvl:lagrcr:0307. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johanne Perron)
If references are entirely missing, you can add them using this form.