search query: @indexterm welfare / total: 396
reference: 37 / 396
| Author: | Armstrong, M. Chen, Y. |
| Title: | Inattentive consumers and product quality |
| Journal: | Journal of the European Economic Association
2009 : APR-MAY, VOL. 7:2-3, p. 411-422 |
| Index terms: | consumers prices product quality profit welfare |
| Language: | eng |
| Abstract: | This paper presents a model in which some consumers shop on the basis of price alone. They do not pay attention to product quality. To exploit these inattentive consumers, a firm may "cheat" and offer a worthless product. Firms follow a mixed strategy involving both price and quality dispersion in the unique symmetric equilibrium. The presence of inattentive consumers harms attentive consumers. In addition it enables firms to earn positive profits. Approximately half of the sellers will cheat in the case of many sellers. A market transparency policy which boosts the number of attentive consumers will make firms less inclined to cheat. This improves welfare but the impact of the policy on profit and consumer surplus is ambiguous. |
SCIMA