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Competition and Product Misrepresentation

Daniel Goetz ()
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Daniel Goetz: Rotman School of Management, 105 St. George St., Toronto, ON, Canada M5S 3E6

No 17-03, Working Papers from NET Institute

Abstract: This paper examines the effect of competition on product quality when product quality is unobserved before purchase. Using a dataset that records the actual broadband internet speed consumers receive as well as the speed the provider claims is being delivered, I find that an additional broadband competitor raises the ratio of actual to claimed speeds for incumbents by between 23 and 32 percent within the first 6 months, but that this effect attenuates after 18 months. This increase is due to improvements in the actual speed, and not just reductions in the claimed speed. I recover the causal effect of competition on product misrepresentation by leveraging the launch of a broadband-capable satellite in mid-2012 and exploiting exogenous variation in the suitability for satellite internet across U.S. counties. I provide suggestive evidence that the reduction in firms’ strategic misrepresentation of their products led to reduced misallocation of consumers across internet plans.

Keywords: broadband access; market structure; quality disclosure (search for similar items in EconPapers)
JEL-codes: L96 L11 L15 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2017-09
New Economics Papers: this item is included in nep-com, nep-ict, nep-ind and nep-pay
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