The Effect of Information on the Well-Being of the Uninformed: What's the Chance of Getting a Decent Meal in an Unfamiliar City

30 Pages Posted: 16 Oct 2000

See all articles by James Albrecht

James Albrecht

Georgetown University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Susan Vroman

Georgetown University; IZA Institute of Labor Economics

Harald Lang

Royal Institute of Technology (KTH) - Department of Mathematics (MAT)

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Abstract

We consider a market in which some consumers are fully informed about the quality of a product sold by different firms, while other consumers are uninformed. We examine the effects on the prices and qualities offered in the market of increasing the fraction of informed consumers. In equilibrium, three firm types can exist - high-price/high-quality, low-price/low-quality, and high-price/low-quality. The third firm type exploits the uninformed by mimicking the high-quality type's price, but provides low quality. We find that increasing the fraction of informed consumers can make the uninformed worse off by changing the mix of firms to the detriment of the uninformed.

Keywords: Consumer Information, Product Quality, Search

JEL Classification: L150, D830

Suggested Citation

Albrecht, James W. and Vroman, Susan B. and Lang, Harald, The Effect of Information on the Well-Being of the Uninformed: What's the Chance of Getting a Decent Meal in an Unfamiliar City. Available at SSRN: https://ssrn.com/abstract=240244 or http://dx.doi.org/10.2139/ssrn.240244

James W. Albrecht

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-687-6105 (Phone)
202-687-6102 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Susan B. Vroman (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States
202-687-6024 (Phone)
202-687-6102 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Harald Lang

Royal Institute of Technology (KTH) - Department of Mathematics (MAT) ( email )

Sweden
+46 (0) 7 7906197 (Phone)
+46 (0) 8 58588437 (Fax)

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