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Quality expectations, reputation, and price

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  • Landon, Stuart
  • Smith, Constance

Abstract

The impact on price of current product quality and reputation are estimated using data from the market for Bordeaux wine. A model is proposed in which price is a function of current quality and expected quality, where the latter depends on reputation. Equations determining price and expected quality are estimated jointly. The empirical findings show that the price premium associated with better individual and collective (or group) reputation far exceeds that associated with improvements in current quality. As well, the market values collective reputation indicators only to the extent that they are useful predictors of product quality.

Suggested Citation

  • Landon, Stuart & Smith, Constance, 1998. "Quality expectations, reputation, and price," MPRA Paper 9774, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:9774
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    JEL classification:

    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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