QUALITY SIGNALING AND OLIGOPOLISTIC OVERCHARGES

William H. Lesser and Robert T. Masson

Review of Policy Research, 1983, vol. 2, issue 3, 484-494

Abstract: When making brand selection decisions for complex technological products, a consumer is likely to use a subset of the characteristics as a “signal” of a brand's quality and performance. This study examines the usefulness of brandedness as a signal for consumers selecting three types of durable products, small and large appliances, and power hand tools. Using quality data from Consumer Reports, the brand image was found to assist appliance shoppers in avoiding low quality, but to be of little value in assuring high quality. For hand tools the signal provided universally weak and misleading information. As a result of the imperfect informational content of brandedness, consumers are estimated to pay overcharges of 5 to 39 percent for these products. A need for improved sources of quality information was identified.

Date: 1983
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