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The Demand for Tests

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  • Thomas Liebi

Abstract

Many consumption goods have inherent attributes that are unknown to both consumers and producers of the good. This is reflected for example by the current discussion about potential harms of food products containing genetically modified organisms. The underlying paper analyzes consumers' demand for product tests in a surrounding of symmetric but imperfect information. It is shown that the demand for information of existing customers is higher than that of potential new ones. In addition, the introduction of an information market unambiguously lowers the product price. This is true, even though expected positive or negative quality news is symmetric in terms of monetary valuation.

Suggested Citation

  • Thomas Liebi, 2003. "The Demand for Tests," Diskussionsschriften dp0307, Universitaet Bern, Departement Volkswirtschaft.
  • Handle: RePEc:ube:dpvwib:dp0307
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    File URL: http://www.vwl.unibe.ch/wp-content/uploads/papers/dp/dp0307.pdf
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    References listed on IDEAS

    as
    1. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    2. Bester, Helmut & Ritzberger, Klaus, 2001. "Strategic pricing, signalling, and costly information acquisition," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1347-1361, November.
    3. Cooper, Russell & Ross, Thomas W., 1985. "Monopoly provision of product quality with uninformed buyers," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 439-449, December.
    4. Jones, Philip & Hudson, John, 1996. "Signalling product quality: When is price relevant?," Journal of Economic Behavior & Organization, Elsevier, vol. 30(2), pages 257-266, August.
    5. Michael H. Riordan, 1986. "Monopolistic Competition with Experience Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 265-279.
    6. Thomas Liebi, 2002. "Monitoring Eco-Labels: You Can Have Too Much of a Good Thing," Diskussionsschriften dp0207, Universitaet Bern, Departement Volkswirtschaft.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    tests; imperfect; quality information; product quality;

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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