Price as a signal of product quality: Some experimental evidence

Giovanni Mastrobuoni (), Franco Peracchi and Aleksey Tetenov ()

No 1214, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: We separate the budgetary and non-budgetary effects of price on demand using choice data from wine tasting experiments in which consumers tasted wines of different quality accompanied by fictitious price information. The non-budgetary effect is present and nonlinear: it is strongly positive between 3 and 5 euro, and undetectable between 5 and 8 euro. We find a similar nonlinear price-quality relationship in a large sample of wine ratings from the same price segment, supporting the hypothesis that consumer behavior in the experiment is consistent with rationally using prices as signals of quality. Price signals also have greater importance for inexperienced (young) consumers.

Pages: 28 pages
Date: 2012, Revised 2012-10
New Economics Papers: this item is included in nep-agr, nep-exp, nep-ind and nep-mkt
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Related works:
Journal Article: Price as a Signal of Product Quality: Some Experimental Evidence* (2014)
Working Paper: Price as a signal of product quality: some experimental evidence (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1214

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