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Trusting Labels: A Matter of Numbers?

  • Thomas Liebi
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    Labelling is an increasingly popular way to deal with the problem of non-observability of quality inherent in the consumption of credence goods. I present a model in which the number of labelled products a monopolist offers serves as a signal for the non-observable endogenous quality. An increase in the number of labelled products increases the risk of losing consumer trust by increasing the possibility of detecting wrong labels. This lowers the incentive to produce low quality in the first place.

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    Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0201.

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    Date of creation: Feb 2002
    Date of revision:
    Handle: RePEc:ube:dpvwib:dp0201
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    1. Dulleck, Uwe & Kerschbamer, Rudolf, 2001. "On Doctors, Mechanics and Computer Specialists. Or Where are the Problems with Credence Goods?," CEPR Discussion Papers 3016, C.E.P.R. Discussion Papers.
    2. Pil Choi, J., 1997. "Brand Extension as Informational Leverage," ISER Discussion Paper 0451, Institute of Social and Economic Research, Osaka University.
    3. Luis Cabral, 2000. "Stretching Firm and Brand Reputation," Working Papers 00-07, New York University, Leonard N. Stern School of Business, Department of Economics.
    4. Emons, Winand, 2001. "Credence goods monopolists," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 375-389, March.
    5. Winand Emons, 1997. "Credence Goods and Fraudelent Experts," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 107-119, Spring.
    6. Golan, Elise H. & Kuchler, Fred & Mitchell, Lorraine, 2000. "Economics Of Food Labeling," Agricultural Economics Reports 34069, United States Department of Agriculture, Economic Research Service.
    7. repec:tpr:qjecon:v:98:y:1983:i:4:p:659-79 is not listed on IDEAS
    8. Sullivan, Mary, 1990. "Measuring Image Spillovers in Umbrella-Branded Products," The Journal of Business, University of Chicago Press, vol. 63(3), pages 309-29, July.
    9. Carl Shapiro, 1982. "Consumer Information, Product Quality, and Seller Reputation," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 20-35, Spring.
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