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

Rroshi, Daniela and Weichselbaumer, Michael (2021) What is in a price? Evidence on quality signaling for experience goods. Department of Economics Working Paper Series, 311. WU Vienna University of Economics and Business, Vienna.

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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.

Item Type: Paper
Keywords: Asymmetric Information, Consumer Protection, Quality Disclosure
Classification Codes: JEL L15, D18, D22
Divisions: Departments > Volkswirtschaft
Depositing User: Claudia Tering-Raunig
Date Deposited: 06 Apr 2021 12:57
Last Modified: 06 Apr 2021 12:57
URI: https://epub.wu.ac.at/id/eprint/8061

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