Product Testing in Markets for Experience Goods

Florian Spitzer, Steffen Huck and Jean-Robert Tyran

No 12568, CESifo Working Paper Series from CESifo

Abstract: In markets for experience goods where sellers cannot build reputations, buyers may refrain from purchasing, leading to low efficiency. A product testing institution can mitigate this problem by offering buyers a noisy but informative signal about product quality for a fee before they decide whether to buy. Theory predicts that such testing improves efficiency only when the signal is inexpensive; if the cost is high, it should have no effect. Our experimental results confirm that low-cost signals increase efficiency, although the gains are smaller than expected. Surprisingly, high-cost signals also improve efficiency compared to a control treatment without signals. These findings suggest that institutions predicted to be ineffective by standard theory may nevertheless perform better in practice.

Keywords: experience good, product testing, product quality, signal; experiment (search for similar items in EconPapers)
JEL-codes: C73 C91 L15 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-com, nep-exp and nep-mic
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