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Product quality and imperfect information

Schwartz, Alan and Wilde, Louis L. (1985) Product quality and imperfect information. Review of Economic Studies, 52 (2). pp. 251-262. ISSN 0034-6527. doi:10.2307/2297620.

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This paper considers markets in which consumers are imperfectly informed about both product prices and quality levels offered by firms. We characterize necessary and sufficient conditions for existence of the various equilibrium configurations of price and quality that can arise in two paradigm cases; when all consumers prefer higher quality and when all consumers prefer lower quality. Our results suggest that firms will exploit imperfect information by charging noncompetitive prices as well as by offering other than ideal quality in the former case, but only by changing noncompetitive prices in the latter case.

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Additional Information:© 1985 The Society for Economic Analysis Limited. First version received January 1983; final version accepted September 1984 (Eds.). Research for this paper was supported by NSF Grant #SES 81-17708. This paper benefited considerably from comments received at workshops held at the California Institute of Technology, the University of Chicago, Northwestern University and Stanford University. Portions of it were completed while Professor Wilde was a Fellow in Civil Liability at the Yale Law School. Formerly SSWP 445.
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Subject Keywords:Consumer prices, Consumer equilibrium, Consumer preferences, Imperfect information, Market prices, Comparative advantage, Demand, Zero profit condition, Consumer information, Sufficient conditions
Issue or Number:2
Record Number:CaltechAUTHORS:20171115-162132895
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:83243
Deposited By: Jacquelyn Bussone
Deposited On:16 Nov 2017 00:37
Last Modified:15 Nov 2021 19:56

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