What is in a price? Evidence on quality signaling for experience goods

Daniela Rroshi () and Michael Weichselbaumer
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Daniela Rroshi: Department of Economics, Vienna University of Economics and Business

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: We study the effect of quality disclosure on prices using quality tests released by the main consumer protection agency in Germany. Both durable and non-durable consumer products are covered, representing about 5 percent of weighted expenditures for all products in the German CPI. Cross-section results of the price-quality relation before quality disclosure show that higher prices are positively correlated with higher quality for durable goods, and negatively correlated for non-durable goods; both results are in line with theoretical models of price signaling. In the dynamic analysis, we employ a RD-type approach around publication of the quality evaluation for identification. Results show a positive effect of quality disclosure on prices for high quality durable products and a negative effect for low quality products suggesting that the information improves matching. Opposite results hold for non-durable products. Survival estimates show that products of low quality leave the market earlier.

Keywords: Asymmetric Information; Consumer Protection; Quality Disclosure (search for similar items in EconPapers)
JEL-codes: D18 D22 L15 (search for similar items in EconPapers)
Date: 2021-03
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Working Paper: What is in a price? Evidence on quality signaling for experience goods (2021)
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