The Impact of Online Information on the Value of Quality Signals in Traditional Markets
34 Pages Posted: 26 Feb 2007 Last revised: 3 Aug 2014
Date Written: April 2008
With the decentralization of information and the democratization of expertise brought about by the growth of the Web, consumers now have access to a plethora of information on various aspects of their purchase process. This study seeks to examine whether such decentralized online information substitutes or complements traditional centralized sources of information. Specifically, we examine how the increased access to online information alters the salience and value of conventional quality signaling mechanisms such as certification for consumers. We draw upon a unique and extensive dataset of consumers who obtained vehicle and transaction related information from online sources in their used vehicle purchase process to examine the impact of their information acquisition on the choice of certification, as well as the price paid. We compare the outcomes of sales across certified and non-certified used car purchases. Our findings highlight that product-related information substitutes, and price-related information complements, certification as indicated by their differential impacts on demand and price of certified used cars. We discuss the relevance of our findings for buyers and sellers and outline implications for online information providers as well.
Keywords: certification, online information, quality signals, uncertainty reduction, used cars
JEL Classification: M31, O33, C01, C42
Suggested Citation: Suggested Citation