Competition and Product Misrepresentation

28 Pages Posted: 10 Oct 2017

Date Written: September 30, 2017

Abstract

This paper examines the effect of competition on product quality when product quality is unobserved before purchase. Using a dataset that records the actual broadband internet speed consumers receive as well as the speed the provider claims is being delivered, I find that an additional broadband competitor raises the ratio of actual to claimed speeds for incumbents by between 23 and 32% within the first 6 months, but that this effect attenuates after 18 months. This increase is due to improvements in the actual speed, and not just reductions in the claimed speed. I recover the causal effect of competition on product misrepresentation by leveraging the launch of a broadband-capable satellite in mid-2012 and exploiting exogenous variation in suitability for satellite internet across U.S. counties. I provide suggestive evidence that the reduction in firms’ strategic misrepresentation of their products led to reduced misallocation of consumers across internet plans.

Suggested Citation

Goetz, Daniel, Competition and Product Misrepresentation (September 30, 2017). NET Institute Working Paper No. 17-03, Rotman School of Management Working Paper No. 3049334, Available at SSRN: https://ssrn.com/abstract=3049334 or http://dx.doi.org/10.2139/ssrn.3049334

Daniel Goetz (Contact Author)

Rotman School of Management ( email )

United States

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