A Model of Endogenous Quality Management

This paper is concerned with product quality, defined as a kind of durability. Existing models of product quality (in the sense considered here) depend on the idea of signalling, itself driven by an informational asymmetry dictated by “Nature”. The paper proposes an alternative approach, which endogenises the quality managment process. A model is developed which is applicable to the markets for consumer durables and for some intermediate goods. Both competitive and monopolistic markets are considered, and some comparative static results are obtained.

Lemons on the Web: A Signalling Approach to the Problem of Trust in Internet Commerce

Asymmetric information is at the heart of situations involving trust. In the case of B2C Internet commerce, the information asymmetry typically relates to the difficulty that consumers have of distinguishing between "trustworthy" and "untrustworthy" Web merchants. The impasse can be resolved by the use of signals by trustworthy Web merchants to differentiate themselves from untrustworthy ones. Using an experimental design where subjects are exposed to a series of purchase choices, we investigate three possible signals, an unconditional money-back guarantee, branding, and privacy statement, and test their efficacy. Our empirical results confirm the predictions suggested by signalling theory.trust (social behaviour), consumer behaviour

Umbrella Branding and External Certification

We study the interdependence of optimal tax and expenditure policies. An optimal policy requires that information on preferences is made available. We first study this problem from a general mechanism design perspective and show that efficiency is possible only if the individuals who decide on public good provision face an own incentive scheme that differs from the tax system. We then study democratic mechanisms with the property that tax payers vote over public goods. Under such a mechanism, efficiency cannot be reached and welfare from public good provision declines as the inequality between rich and poor individuals increases.Umbrella branding, certification, signalling

Quality Warranties and Food Products in Argentina. What Do Consumers Believe In?

Consumers increasingly demand multiple-quality attributes in food products and value reliable means to identify them. For producers, the effective communication of their products quality is a marketing strategy. Therefore, another market of information associated with the new food markets emerges. This market is closely linked to the institutional environment and the level of trust in different information sources. In this article the emphasis will be put on how the different quality signals provided by the firms in their products affect the consumers´ behaviour. The objective is to investigate domestic consumers' perceptions and beliefs about food quality information in Argentina to identify the mechanisms that fully guarantee this quality. The results indicate that domestic consumers´ perceptions about high quality products are more related to brand names than seals and certifications in labels. This has consequences upon the competitiveness of domestic food market. Quality certification and seller´s reputation are quality warranties restringed only to certain domestic market niches. The households´situation and occupational status seem to be more complex variables that resume the interaction between attitudes, information-processing and actions.food quality, quality warranties, consumers, Argentina, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, D12, L15,

Protecting Geographical Indications: Lessons learned from the Economic Literature

Resource /Energy Economics and Policy,

Two-Dimensional Product Differentiation Under Duopoly: An Application to Product and Service Reliability

Under oligopoly firms are often observed to specialise their production, with some firms producing highly reliable output and offering good warranty deals, while others produce less reliable output and offer less attractive warranties, but charge a lower price. This paper develops an approach to product/service reliability which provides an alternative to the conventional analysis based on the characteristics approach. The model of this paper defines reliability as the objective probability of product failure, not as a characteristic of individual goods. Reliability, thus defined, is treated as a choice variable of the firm, and consumers’ preferences are partially endogenised. This approach to reliability is incorporated into a duopoly model which explains the phenomenon of specialisation described above. The model is applicable to the markets for consumer durables, some intermediate goods and some services.Reliability, duopoly.

Product Quality Under Regulated Monopoly

A monopolist regulated via a price cap may well have an incentive to change other variables of interest to consumers, in an attempt to shift the cost and demand curves in his favour. This paper develops a model in which the monopolist can vary product quality and the terms of a warranty, in response to price regulation. The regulated and unregulated monopoly outcomes are compared with the Pareto-efficient outcome.

Reputations, Relationships and the Enforcement of Incomplete Contracts

This paper discusses the literature on the enforcement of incomplete contracts. It compares legal enforcement to enforcement via relationships and reputations. A number of mechanisms, such as the repeat purchase mechanism (Klein and Leffler (1981)) and efficiency wages (Shapiro and Stiglitz (1984)), have been offered as solutions to the problem of enforcing an incomplete contract. It is shown that the efficiency of these solutions is very sensitive to the characteristics of the good or service exchanged. In general, neither the repeat purchase mechanism nor efficiency wages is the most efficient in the set of possible relational contracts. In many situations, total output may be increased through the use of performance pay and through increasing the quality of law.contract, law and economics, reputation, repeated games, incomplete contracts, transactions costs, institutional economics, contract enforcement