Market Thickness, Prices and Honesty: A Quality Demand Trap

Siddhartha Bandyopadhyay

Discussion Papers from Department of Economics, University of Birmingham

Abstract: We analyze how product quality, prices and demand interact in a dynamic model of asymmetric information. We show that in markets for experience goods, even in the absence of certification, trade may occur, arising from a relation between market thickness and the incentive of sellers to produce high quality. We characterize the equilibrium prices, which depend on the distribution of buyer valuations. Finally, we show that the relationship between market thickness and incentive to produce high quality goods exists up to a certain threshold level of demand.

Keywords: Market Thickness; Endogenous Quality; Multiple Equilibria; Price Mechanism (search for similar items in EconPapers)
JEL-codes: L14 L15 O12 O17 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2012-07
New Economics Papers: this item is included in nep-bec, nep-com, nep-cta and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Market thickness, prices and honesty: A quality demand trap (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:12-06

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