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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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    File URL: http://www.vwl.unibe.ch/papers/dp/dp0201.pdf
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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
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    Handle: RePEc:ube:dpvwib:dp0201
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    1. Luis M.B. Cabral, 2000. "Stretching Firm and Brand Reputation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 658-673, Winter.
    2. Uwe Dulleck & Rudolf Kerschbamer, 2001. "On Doctors, Mechanics and Computer Specialists Or Where are the Problems with Credence Goods?," Vienna Economics Papers 0101, University of Vienna, Department of Economics.
    3. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
    4. Emons, Winand, 1997. "Credence Goods Monopolists," Berkeley Olin Program in Law & Economics, Working Paper Series qt9c5508x4, Berkeley Olin Program in Law & Economics.
    5. Golan, Elise H. & Kuchler, Fred & Mitchell, Lorraine, 2000. "Economics Of Food Labeling," Agricultural Economics Reports 34069, United States Department of Agriculture, Economic Research Service.
    6. Carl Shapiro, 1982. "Consumer Information, Product Quality, and Seller Reputation," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 20-35, Spring.
    7. Winand Emons, 1997. "Credence Goods and Fraudelent Experts," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 107-119, Spring.
    8. Choi, Jay Pil, 1998. "Brand Extension as Informational Leverage," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 655-69, October.
    9. 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.
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