Premiums for High Quality Products as Returns to Reputations
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ID: 290539
1983
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Abstract
This paper derives an equilibrium price-quality schedule for markets in which buyers cannot observe product quality prior to purchase. In such markets there is an incentive for sellers to reduce quality and take short-run gains before buyers catch on. In order to forestall such quality cutting, the price-quality schedule involves high quality items selling at a premium above their cost. This premium also serves the function of compensating sellers for their investment in reputation. The effects of improved consumer information and of a minimum quality standard on the equilibrium price-quality schedule are studied. In general, optimal quality standards exclude from the market items some consumers would like to buy.
| Reference Key |
openalex_W2069630233
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|---|---|
| Authors | Carl Shapiro |
| Journal | the quarterly journal of economics |
| Year | 1983 |
| DOI |
10.2307/1881782
|
| URL | |
| Keywords | Keywords not found |
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