Advertising and Quality in the U.S. Market for Automobiles

Mark Nichols

Southern Economic Journal, 1998, vol. 64, issue 4, 922-939

Abstract: Using data consisting of domestic and foreign automobiles over the period 1985‐1990, the hypothesis that advertising serves as a signal of higher quality is empirically tested. This is accomplished by examining how advertising levels vary with a quality measure that is not observable at the time of purchase but becomes available subsequent to a model's release. Above average quality results in expenditures that are 15% higher than average quality outlays. Lending further support to the signalling hypothesis, the positive advertising–quality relationship holds strongest when a model significantly improves in quality relative to the previous year's model.

Date: 1998
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https://doi.org/10.1002/j.2325-8012.1998.tb00111.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:64:y:1998:i:4:p:922-939

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