European Business Schools Librarian's Group
Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics
No 311: What is in a price? Evidence on quality signaling for experience goods
Daniela Rroshi () and Michael Weichselbaumer ()
Additional contact information
Daniela Rroshi: Department of Economics, Vienna University of Economics and Business
Michael Weichselbaumer: Department of Economics, Vienna University of Economics and Business
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.
Keywords: Asymmetric Information, Consumer Protection, Quality Disclosure
JEL-codes: L15; D18; D22 March 2021
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