Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/37132
Authors: 
Clements, Matthew T.
Year of Publication: 
2010
Series/Report no.: 
Economics / Discussion papers 2010-20
Abstract: 
If a product has two dimensions of quality, one observable and one not, a firm can use observable quality as a signal of unobservable quality. The correlation between consumers' valuation of high quality in each dimension is a key determinant of the feasibility of such signaling. A firm may use price alone as a signal, or price and quality together. Both signals tend to be used when the market is very uninformed, whereas price signaling alone tends to be used when the market is moderately informed. If high observable quality is inexpensive to provide, then it cannot signal high unobservable quality, and low observable quality is always an indication that unobservable quality is high.
Subjects: 
Signaling
quality
JEL: 
D82
L15
Creative Commons License: 
http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type: 
Working Paper

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