Information Provision in a Vertically Differentiated Competitive Marketplace

Kuksov, Dmitri; Yuanfang Lin
January 2010
Marketing Science;Jan/Feb2010, Vol. 29 Issue 1, p122
Academic Journal
This paper examines the interaction of information provision, product quality, and pricing decisions by competitive firms to explore the following question: in a competitive market where consumers face uncertainty about product quality and/or their preference for quality, which firms--those that sell higher- or lower-quality products--have the higher incentive to provide what type of information? We find that while the higher-quality firm should always provide information resolving consumer uncertainty on product quality, the lower-quality firm under certain conditions will have the higher incentive to and will be the one to provide information resolving consumer uncertainty about their quality preferences. In the analysis, we trace the latter result to competition and to free-riding on the information provision. Specifically, in a monopoly market or when consumer free-riding is restricted by the costliness of store visits, the lower-quality firm would have a lower incentive to provide information resolving consumer preference uncertainty than otherwise. The model is also adapted to examine product returns as a possible strategy of information provision.


Related Articles

  • Preferences and income effects in monopolistic competition models. Tarasov, Alexander // Social Choice & Welfare;Mar2014, Vol. 42 Issue 3, p647 

    This paper develops a novel approach to modeling preferences in monopolistic competition models with a continuum of goods. In contrast to the commonly used constant elasticity of substitution preferences, which do not capture the effects of consumer income and the intensity of competition on...

  • A note on welfare-improving ignorance about quality. Creane, Anthony // Economic Theory;Mar2008, Vol. 34 Issue 3, p585 

    Consider a monopolist that is selling a high quality product when the quality is unknown to a fraction of the consumers. If the quality cannot be signaled and the fraction is sufficiently large, then the monopolist will offer a low price to induce uninformed consumers to buy. If the fraction is...

  • The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination. Salop, Steven // Review of Economic Studies;Oct77, Vol. 44 Issue 3, p393 

    Although economists often assume that commodities form homogeneous categories with a single price, there are in fact heterogeneities within commodity groupings. Many markets for apparently identical commodities are characterized by dispersion in price and differences in durability and other...

  • RISK-EFFICIENT MONOPOLY PRICING FOR THE MULTIPRODUCT FIRM: COMMENT. Flannery, Mark J. // Quarterly Journal of Economics;Nov79, Vol. 93 Issue 4, p737 

    This article comments on a study conducted by Robert E. Meyer which examined the behavior of a price-discriminating monopolist under uncertainty. Meyer derives two important conclusions with respect to the optimal pricing policy of a firm. First, the price charged each market segment under...

  • How does taste and quality impact on import prices? Benkovskis, Konstantins; Wörz, Julia // Review of World Economics;Nov2014, Vol. 150 Issue 4, p665 

    Understanding the dynamics of import prices is an important but challenging issue that affects our assessment of welfare. We propose an exact import price index by extending the analysis of Broda and Weinstein (Q J Econ 121(2):541-585, ), who include growth in product variety in their...

  • A MEASURE OF MONOPOLY IN SELLING. Morgan, Theodore // Quarterly Journal of Economics;May46, Vol. 60 Issue 3, p461 

    Presents a graphic representation of the cause of the monopolistic status of a given 'i' with respect to any other firm 'j'. Analysis in terms of price competition; Criterion of degree of monopoly; Differentiation of product; Illustration of the range of situation which leads to corresponding...

  • PHYSICIAN PRICING: MONOPOLISTIC OR COMPETITIVE: COMMENT. Frech III, H.E.; Ginsburg, Paul B. // Southern Economic Journal;Apr72, Vol. 38 Issue 4, p573 

    Newhouse has considered an important topic in the economics of health. However, inconsistencies in his analysis make it impossible for any of his statistical tests to distinguish between monopolistic and competitive physician pricing policy. In fact, his empirical findings do tend to indicate...

  • A NOTE ON CHAMBERLIN'S MONOPOLY SUPPLY CURVE. Hawkins, E. R. // Quarterly Journal of Economics;Aug39, Vol. 53 Issue 4, p641 

    Examines the error in theory of monopolistic competition by Chamberlin. Determination of a type of monopoly supply curve; Solution for price problem in monopolistic competition; Discussion on the marginal cost curve of sellers.

  • Rational Expectations and Price Rigidity in a Monopolistically Competitive Market. Nishimura, Kiyohiko G. // Review of Economic Studies;Apr86, Vol. 53 Issue 2, p283 

    This paper analyses monopolistically competitive markets under incomplete information, facing unanticipated disturbances. Firms determine their prices before they have information about other firms' prices, and form their expectations about the average price rationally. If the market becomes...


Read the Article


Sign out of this library

Other Topics