| Author: | Faulhaber, G. R. Yao, D. A. |
| Title: | "Fly-by-night" firms and the market for product review |
| Journal: | Journal of Industrial Economics
1989 : SEP, VOL. 38:1, p. 65-78 |
| Index terms: | PRODUCT POLICY QUALITY MARKETS COMPANY FAILURES MARKETING INFORMATION |
| Language: | eng |
| Abstract: | Previous work on product quality by introducing a market for information via third-party product reviews is extended. The effect of that market on prices and quantities in the underlying product market is analyzed. "Fly-by-night" firms can profit from consumers' prior ignorance, and reputation and product reviews are a means by which consumers can identify quality. It was found that as the cost of producing and distributing reviews decreases, the reputable firm price increases and the new-entrant price decreases; as a result, the supply of high-quality firms increases and the supply of low-quality firms decreases. Some factors that affect the cost of product reviews, and the likelihood of their availability in the market are examined. |
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