A Model of Product Design and Information Disclosure Investments

Panos Markopoulos () and Kartik Hosanagar ()
Additional contact information
Panos Markopoulos: Department of Business and Public Administration, University of Cyprus
Kartik Hosanagar: Department of Operations and Information Management, Wharton School, University of Pennsylvania

No 13-25, Working Papers from NET Institute

Abstract: As online information availability for products and services is increasing and as buyers engage in more online search prior to purchase decisions, it is becoming more important for firms to know when to invest to reduce buyer uncertainty. This article argues that today's firms should view product design and investments to reduce buyer uncertainty as an integrated process, which is in turn heavily influenced by how much information buyers can obtain independently, for example, by reading other buyers' reviews or by accessing third party infomediaries. Using a game-theoretic model of a competitive market, we explain how product quality decisions influence future investments to reduce buyer uncertainty, and demonstrate how firms should take this dependency into account to avoid over-investing in quality. We also show that firms, and especially lower quality firms, can free ride on the product information already available in the market, and reduce their own disclosure investments. Finally we show that firms can take further advantage of such ambient information availability to ease the intensity of competition among them, and specifically to reduce their product quality investments.

Keywords: Buyer uncertainty; information disclosure; product quality; infomediaries (search for similar items in EconPapers)
JEL-codes: C72 D43 D82 D83 L13 L15 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2013-10
New Economics Papers: this item is included in nep-com, nep-cta and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.netinst.org/Markopoulos_Hosanagar_13-25.pdf (application/pdf)
no

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:1325

Access Statistics for this paper

More papers in Working Papers from NET Institute
Bibliographic data for series maintained by Nicholas Economides ().