Price and Quality Relationships in Local Service Industries

FTC Bureau of Economics Working Paper No. 249

67 Pages Posted: 26 Jun 2003

See all articles by Dennis Murphy

Dennis Murphy

Federal Trade Commission - Bureau of Economics

Date Written: May 2002

Abstract

This working paper presents the findings of research on the relationship between price and quality in consumer service industries in the Washington, D.C. area. The study relies primarily upon consumer ratings of service provider quality and other data published in Washington Consumer's Checkbook Magazine. The data base includes nineteen service industries and, in virtually all cases, time series information for price and quality ratings over several ratings periods since the magazine's inception in 1976. The results provide interesting and frequently surprising information on basic price-quality relationships in this sector, and on the reliability of several non-price "signals" that consumers might use to gauge a service provider's probable performance. Specifically, only three of the nineteen industries report consistently significant positive price-quality correlations, and industries specializing in repair services frequently display significant negative correlations between price and quality. Further, possible signaling mechanisms, such as the size of a firm's Yellow Pages advertisement, or a firm's status as a member of a nationwide chain, do not function as indicators of higher quality in this data set.

JEL Classification: C10, D83, L15

Suggested Citation

Murphy, Dennis, Price and Quality Relationships in Local Service Industries (May 2002). FTC Bureau of Economics Working Paper No. 249. Available at SSRN: https://ssrn.com/abstract=387882 or http://dx.doi.org/10.2139/ssrn.387882

Dennis Murphy (Contact Author)

Federal Trade Commission - Bureau of Economics ( email )

601 Pennsylvania Avenue, NW
Rm 4131
Washington, DC 20580
United States
202-326-3524 (Phone)
202-326-3443 (Fax)

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