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Market power and product quality: review of the literature

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  • Cinzia COLAPINTO

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Abstract

In this paper we focus on the relation between product quality and information, which let us distinguishing search and experience goods. We show how literature has studied the way firms signalling the high quality of their products/services: introductory discount pricing, strong advertising expenditures or commitment (for instance, warranties). For search goods we consider contributions dealing with a single-product monopolist (Spence 1975, Rochet and Stole 1999, Lambertini 1998,…) and a multiproduct monopolist (Mussa and Rosen 1978), this first simple model has been used extensively by applied theorists studying regulation, auctions, and labor contracts (Katz 1984, Rochet and Stole 2002,…) For experience goods, we mention for instance the lemons model (Akerlof 1970) and no milking condition (Shapiro 1983)

Suggested Citation

  • Cinzia COLAPINTO, 2006. "Market power and product quality: review of the literature," Departmental Working Papers 2006-35, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2006-35
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    File URL: http://wp.demm.unimi.it/files/wp/2006/DEMM-2006_035wp.pdf
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    References listed on IDEAS

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    1. Julie A. Caswell & Eliza M. Mojduszka, 1996. "Using Informational Labeling to Influence the Market for Quality in Food Products," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(5), pages 1248-1253.
    2. 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.
    3. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
    4. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    5. Michael Spence, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 561-572.
    6. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
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    More about this item

    Keywords

    Product quality; search goods; experience goods; advertising and reputation;

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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