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Advertising and Quality in the U.S. Market for Automobiles
Author(s) -
Nichols Mark W.
Publication year - 1998
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.1998.tb00111.x
Subject(s) - quality (philosophy) , advertising , measure (data warehouse) , econometrics , business , economics , marketing , computer science , philosophy , epistemology , database
Using data consisting of domestic and foreign automobiles over the period 1985‐1990, the hypothesis that advertising serves as a signal of higher quality is empirically tested. This is accomplished by examining how advertising levels vary with a quality measure that is not observable at the time of purchase but becomes available subsequent to a model's release. Above average quality results in expenditures that are 15% higher than average quality outlays. Lending further support to the signalling hypothesis, the positive advertising–quality relationship holds strongest when a model significantly improves in quality relative to the previous year's model.