Investments in Quality, Collective Reputation and Information Acquisition

43 Pages Posted: 20 Jun 2013

See all articles by Fulvio Fontini

Fulvio Fontini

University of Padova - Department of Economics and Management "Marco Fanno"

Katrin Millock

Paris School of Economics (PSE); CNRS

Michele Moretto

University of Padua, Dep of Economics and Management

Date Written: June 19, 2013

Abstract

In many cases consumers cannot observe firms’ investment in quality or safety, but have only beliefs on the average quality of the industry. In addition, the outcome of the collective investment game of the firms may be stochastic since firms cannot control perfectly the technology or external factors that may affect production. In such situations, when only consumers’ subjective perceptions of the industry level of quality matter, the regulator may make information available to firms or subsidize their information acquisition. Under what conditions is it desirable to make information available? We show how firms’ overall level of investment in quality depends upon the parameters of the quality accumulation process, the cost of investment and the number of firms in the industry. We also show the potentially negative effects on the total level of quality from providing information on consumers’ actual valuation.

Keywords: Collective Reputation, Option Value, Quality

JEL Classification: C73, D92, L15, Q52

Suggested Citation

Fontini, Fulvio and Millock, Katrin E. and Moretto, Michele, Investments in Quality, Collective Reputation and Information Acquisition (June 19, 2013). FEEM Working Paper No. 53.2013, Available at SSRN: https://ssrn.com/abstract=2281818 or http://dx.doi.org/10.2139/ssrn.2281818

Fulvio Fontini

University of Padova - Department of Economics and Management "Marco Fanno" ( email )

Via del Santo, 33
Padova, 35123
Italy

Katrin E. Millock (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

CNRS ( email )

3, rue Michel-Ange
Paris, 75794
France

Michele Moretto

University of Padua, Dep of Economics and Management ( email )

via Del Santo 33
Padova, 35123
Italy
+39 049 8274265 (Phone)
+39 049 8274211 (Fax)

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