Consumer Uncertainty about which Firm Sells the High Quality: on the Slow Penetration of Some Credence Goods

Olivier Bonroy () and Christos Constantatos ()

Cahiers de recherche from GREEN

Abstract: In this paper, we analyze cases where consumers are aware of the existence of two qualities but do not know which firm sells the good one. We show that if the production of the high quality requires higher cost, its producer may be severly disadvantaged, even if the additional utility fully justifies the extra cost. We even show cases where all consumers beliefs are in favour of the efficient high quality producer, yet it is its inefficient rival that monopolizes the market! This result explains the slow penetration of some credence goods like environementally friendly products, organic vegetables, etc. It also makes an urgent call for labelling this kind of products.

Keywords: Incomplete information; quality; asymetric costs (search for similar items in EconPapers)
JEL-codes: D82 L15 (search for similar items in EconPapers)
Date: 2003
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Persistent link: http://EconPapers.repec.org/RePEc:lvl:lagrcr:0307

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