What is in a price? Evidence on quality signaling for experience goods
- Resource Type
- Authors
- Rroshi, Daniela; Weichselbaumer, Michael
- Source
- Subject
- JEL L15, D18, D22
Asymmetric Information, Consumer Protection, Quality Disclosure
health care economics and organizations
- Language
- English
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.
Series: Department of Economics Working Paper Series