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Image concerns and the provision of quality

  • Friedrichsen, Jana

In this paper, I study markets where consumers are heterogeneous with respect to both their concerns for the quality of goods and the image associated with them. Consumers with a taste for quality lend a positive image to the product of their choice and thereby increase the product's value to others. A monopolist restricts the product portfolio and charges price premia to allocate image along with quality. Heterogeneity in image concerns thereby provides a rationale for pooling consumers with differing quality preferences. Although image is correlated with a product's quality in equilibrium, an increase in the value of image may decrease quality provision. In a competitive market, premium prices are unsustainable so that image-concerned consumers buy excessive quality instead. Monopoly may therefore yield higher welfare than competition. Policy options to remedy the efficiency losses are discussed.

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Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Behavior with number SP II 2013-211.

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Date of creation: 2013
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Handle: RePEc:zbw:wzbmbh:spii2013211
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