Effects of Information Provision in an Vertically Differentiated Market
We study the effects of consumer information on equlibrium market prices and observable product quality in the market for child care. Child care markets offer a unique opportunity to study these effects because of the existence of resource and referral agencies (R&Rs) in some markets. R&Rs provide consumers with information on availability, price, and observable characteristics of care. To understand the effects of information provision in markets like child care, we examine the effects of information provision in a model of vertical differentiation. We show conditions in which increased consumer information reduces price dispersion, maximum price, and average price. With this model we examine empirically the effects of R&Rs on the distribution of child care prices and on the distribution of staff-child ratios. We estimate separate models for the distribution of prices and staff-child ratios for infants, toddlers, preschoolers and school age children because of regulatory and care differences across age groups. We find that R&Rs have economically large and statistically significant effects on the distribution of prices for the care infants and toddlers. Geographic markets with R&Rs have significantly less price dispersion and lower maximum prices. There is also some evidence that markets with R&Rs have lower average prices.Information provision via R&Rs has no significant effects on staff-child ratios. These findings are generally consistent with search theory and support the contention that information provision can intensify price competition.
|Date of creation:||Apr 1998|
|Date of revision:|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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.:
- Chipty, Tasneem, 1995. "Economic Effects of Quality Regulations in the Day-Care Industry," American Economic Review, American Economic Association, vol. 85(2), pages 419-24, May.
- Gabsewicz, Jean J. & Garella, Paolo G., 1987. "Price search and spatial competition," European Economic Review, Elsevier, vol. 31(4), pages 827-842, June.
- Reinganum, Jennifer F, 1979.
"A Simple Model of Equilibrium Price Dispersion,"
Journal of Political Economy,
University of Chicago Press, vol. 87(4), pages 851-58, August.
- H. Naci Mocan, 1995.
"Quality Adjusted Cost Functions for Child Care Centers,"
NBER Working Papers
5040, National Bureau of Economic Research, Inc.
- Mocan, H Naci, 1995. "Quality-Adjusted Cost Functions for Child-Care Centers," American Economic Review, American Economic Association, vol. 85(2), pages 409-13, May.
- Tasneem Chipty & Ann Dryden Witte, 1997. "An Empirical Investigation of Firms' Responses to Minimum Standards Regulations," NBER Working Papers 6104, National Bureau of Economic Research, Inc.
- Peter Diamond, 1987.
"Consumer Differences and Prices in a Search Model,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 102(2), pages 429-436.
- Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
- Feldman, Roger D & Begun, James W, 1980. "Does Advertising of Prices Reduce the Mean and Variance of Prices?," Economic Inquiry, Western Economic Association International, vol. 18(3), pages 487-92, July.
- Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
- repec:cor:louvrp:-752 is not listed on IDEAS
- Rafael Rob, 1985. "Equilibrium Price Distributions," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 487-504.
- Benham, Lee, 1972. "The Effect of Advertising on the Price of Eyeglasses," Journal of Law and Economics, University of Chicago Press, vol. 15(2), pages 337-52, October.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:6493. 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: ()
If references are entirely missing, you can add them using this form.