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Location Choice as a Signal for Product Quality: The Economics of 'Made in Germany'

Justus Haucap (), Christian Wey () and Jens F. Barmbold

Journal of Institutional and Theoretical Economics (JITE), 1997, vol. 153, issue 3, 510-

Abstract: In the literature on international marketing it is generally agreed upon that the location of production has considerable effects on consumers' beliefs about product quality. In this paper, a rational choice explanation for this fact is offered. Due to differences in country-specific costs (such a high wages and taxes) and coutnry exit costs (such as compulsory social plans), location choice can act as a signaling device for product quality in the sense that high country-specific costs signal high product quality. The 'Made-in' label may be especially relevant as a signal if sinking resources before entering the market is not posible due to capital market constraints. Furthermore, potential implications for geographic labeling laws are explored.

JEL-codes: L15 K20 M30 R30 (search for similar items in EconPapers)
Date: 1997
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