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Quality expectations, reputation, and price

Author Info

Listed author(s):
  • 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.

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File URL: https://mpra.ub.uni-muenchen.de/9774/1/MPRA_paper_9774.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9774.

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Date of creation: 1998
Publication status: Published in Southern Economic Journal 3.64(1998): pp. 628-647
Handle: RePEc:pra:mprapa:9774
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Web page: https://mpra.ub.uni-muenchen.de

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Keywords: reputation; product quality; information; price;

Find related papers by 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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  11. Timothy J. Bartik & V. Kerry Smith, 1996. "Urban Amenities and Public Policy," Book chapters authored by Upjohn Institute researchers,in: V. Kerry Smith (ed.), Estimating Economic Values for Nature: Methods for Non-Market Valuation, pages 271-318 W.E. Upjohn Institute for Employment Research.
  12. Russell Cooper & Thomas W. Ross, 1984. "Prices, Product Qualities and Asymmetric Information: The Competitive Case," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 197-207.
  13. Karpoff, Jonathan M & Lott, John R, Jr, 1993. "The Reputational Penalty Firms Bear from Committing Criminal Fraud," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 757-802, October.
  14. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  15. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 311-327, Autumn.
  16. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
  17. 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.
  18. Landon, Stuart & Smith, Constance, 1997. "The Use of Quality and Reputation Indicators by Consumers: The Case of Bordeaux Wine," MPRA Paper 9283, University Library of Munich, Germany.
  19. Oxley, Les & McAleer, Michael, 1993. " Econometric Issues in Macroeconomic Models with Generated Regressors," Journal of Economic Surveys, Wiley Blackwell, vol. 7(1), pages 1-40.
  20. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-247, February.
  21. Gorton, Gary, 1996. "Reputation Formation in Early Bank Note Markets," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 346-397, April.
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