Information and Quality in Expanding Markets

33 Pages Posted: 10 Dec 2010

See all articles by Francisco Alcalá

Francisco Alcalá

Universidad de Murcia. Facultad de Economia y Empresa

Miguel González Maestre

affiliation not provided to SSRN

Irene Martinez-Pardina

affiliation not provided to SSRN

Date Written: July 10, 2010

Abstract

Can an increasing number of firms exacerbate problems related to asymmetric information on product quality? We analyze the potential trade-off between variety and information using Salop’s (1979) framework by introducing quality uncertainty and a simple information diffusion process. As the number of firms increases, the marginal benefits of low prices and a wide product variety may be outweighed by a reduction in consumer information and average quality. Thus, the expansion and globalization of markets require a parallel improvement in information mechanisms. Because information has public good characteristics, it is an open question as to how efficiently markets respond to this requirement.

Keywords: Quality, Asymmetric Information, Reputation, Horizontal Differentiation, Market Size

JEL Classification: L13, L15

Suggested Citation

Alcalá, Francisco and González Maestre, Miguel and Martinez-Pardina, Irene, Information and Quality in Expanding Markets (July 10, 2010). Available at SSRN: https://ssrn.com/abstract=1722608 or http://dx.doi.org/10.2139/ssrn.1722608

Francisco Alcalá (Contact Author)

Universidad de Murcia. Facultad de Economia y Empresa ( email )

Campus de Espinardo
Espinardo, Murcia 30100
Spain
34-868883767 (Phone)
34-868883758 (Fax)

Miguel González Maestre

affiliation not provided to SSRN ( email )

Irene Martinez-Pardina

affiliation not provided to SSRN ( email )

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