Information and Quality in Expanding Markets

Francisco Alcalá, Miguel González Maestre () and Irene Martínez Pardina ()
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Miguel González Maestre: Universidad de Murcia
Irene Martínez Pardina: Universidad de Murcia
Authors registered in the RePEc Author Service: Miguel González-Maestre and Francisco José Goerlich Gisbert

No 2010102, Working Papers from Fundacion BBVA / BBVA Foundation

Abstract: Can an increasing number of firms and brands exacerbate problems related to asymmetric information on product quality?. This working paper analyzes this trade-off between variety and information using Salop's (1979) framework by introducing quality uncertainty and a simple information diffusion process. As the number of firms increases, the marginal benefits of lower prices and wider product variety may be outweighed by a reduction in consumer information and average quality. Thus, market expansions require a parallel improvement in information mechanisms. Because information has public good characteristics, it is an open question as to how efficiently the market may respond to this requirement.

Keywords: Quality; asymmetric information; reputation; horizontal differentiation; market size. (search for similar items in EconPapers)
JEL-codes: L13 L15 (search for similar items in EconPapers)
Pages: 42
Date: 2010-11
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