Technology Choice and Price Signaling in Markets for Label Credence Goods

Martin Obradovits () and Markus Walzl

No 2025-11, Economics working papers from Department of Economics, Johannes Kepler University Linz, Austria

Abstract: Consumers increasingly value the environmental and social responsibility of the production processes used by firms, yet these processes often remain unobservable, even after consumption. In this paper, we develop a simple model to examine firms’ technology choices and subsequent price competition in markets for such label credence goods with hidden process attributes. Using a multi-sender signaling framework, we show that in the payoff-dominant equilibrium, firms can partially signal their production choices and avoid Bertrand competition when at least one firm adopts a green technology. Surprisingly, increasing consumers’ environmental concern or eliminating the information asymmetry may reduce social welfare by discouraging green production.

Keywords: label credence goods; technology choice; asymmetric information; price competition; signaling; green production (search for similar items in EconPapers)
JEL-codes: D82 D83 L13 L15 (search for similar items in EconPapers)
Date: 2025-06
New Economics Papers: this item is included in nep-com, nep-dcm, nep-ind and nep-mic
Note: English
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Persistent link: https://EconPapers.repec.org/RePEc:jku:econwp:2025-11

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