Spitzer, Florian. 2017. Product Testing in Markets for Experience Goods. European meeting of the Economic Science Association, Vienna, Österreich, 06.10.-09.10.
BibTeX
Abstract
We examine the effectiveness of a product testing institution in a market for experience goods where reputation formation is not feasible. In our setup, sellers commit ex ante to a quality level (high or low). Buyers can - in addition to buying immediately and leaving the market - pay a fee to get a noisy signal about the quality chosen by the matched seller. We show the existence of a mixed perfect Bayesian equilibrium in which sellers provide high quality with positive probability, while buyers mix between buying immediately and acquiring information. We vary the cost of the signal such that the mixed equilibrium exists in a low-cost treatment but not in a high-cost treatment. The experimental results show that the low-cost signal improves efficiency, but not to the extent as predicted by theory. Surprisingly, the high-cost signal - which is predicted to have no effect - also improves efficiency compared to a control treatment where no signal is available.
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Status of publication | Published |
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Affiliation | WU |
Type of publication | Paper presented at an academic conference or symposium |
Language | English |
Title | Product Testing in Markets for Experience Goods |
Event | European meeting of the Economic Science Association |
Year | 2017 |
Date | 06.10.-09.10. |
Country | Austria |
Location | Vienna |
URL | http://esa2017.wu.ac.at/ |
Associations
- People
- Spitzer, Florian (Former researcher)
- Organization
- Institute for Markets and Strategy IN (Details)
- Research areas (ÖSTAT Classification 'Statistik Austria')
- 5311 Public finance (Details)
- 5953 Game theory (Details)