Inattentive Consumers and Product Quality

Mark Armstrong and Yongmin Chen

Journal of the European Economic Association, 2009, vol. 7, issue 2-3, 411-422

Abstract: We present a model in which some consumers shop on the basis of price alone, without paying attention to product quality. A firm may "cheat" and offer a worthless product to exploit these inattentive consumers. In the unique symmetric equilibrium, firms follow a mixed strategy involving both price and quality dispersion. The presence of inattentive consumers harms attentive consumers, and enables firms to earn positive profits. With many sellers, approximately half of them will cheat. A market transparency policy which boosts the number of attentive consumers will make firms less inclined to cheat, which improves welfare, but the impact of the policy on profit and consumer surplus is ambiguous. (JEL: D18, L13, L15) (c) 2009 by the European Economic Association.

JEL-codes: D18 L13 L15 (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (54)

Downloads: (external link)
http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1542-4774/issues link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Inattentive Consumers and Product Quality (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tpr:jeurec:v:7:y:2009:i:2-3:p:411-422

Access Statistics for this article

Journal of the European Economic Association is currently edited by Xavier Vives, George-Marios Angeletos, Orazio P. Attanasio, Fabio Canova and Roberto Perotti

More articles in Journal of the European Economic Association from MIT Press
Bibliographic data for series maintained by The MIT Press ().