Advertising and Product Quality in Posted-Offer Experiments

Charles Holt and Roger Sherman

Economic Inquiry, 1990, vol. 28, issue 1, 39-56

Abstract: Sellers select both price and quality, but buyers have limited information about those choices in the experiments reported here. Market efficiency is high under full information with truthful advertising of prices and qualities, but is much lower with no advertising of price or quality. Efficiency does not improve when sellers were permitted to advertise price, but not quality, and in half of these experiments "lemons" outcomes occur. Although the range of outcomes is great, it cannot be claimed that price advertising improves efficiency when quality is unknown. Copyright 1990 by Oxford University Press.

Date: 1990
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