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| Author: | Linnemer, L. |
| Title: | Price and advertising as signals of quality when some consumers are informed |
| Journal: | International Journal of Industrial Organization
2002 : SEP, VOL. 20:7, p. 931-947 |
| Index terms: | Consumer goods Advertising Quality |
| Language: | eng |
| Abstract: | A monopoly produces a good of either high or low quality. Some consumers are informed about quality while others are uninformed about quality while others are uninformed and infer quality through the firm's marketing strategy. The model isa an extension of Bagwell and Riordan (Amer. Econ. Rev. 1991, p. 224). Dissipative advertising is an efficient signal of quality when the marginal cost of production of high quality is low. If the proportion of informed consumers is low, quality is signaled only through a high price. If this proportion is intermediate, quality is signaled by both advertising and price. |
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