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W hen I s A dvertising a S ignal of P roduct Q uality ?
Author(s) -
Horstmann Ignatius J.,
MacDonald Glenn M.
Publication year - 1994
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.1994.00561.x
Subject(s) - imperfect , quality (philosophy) , product (mathematics) , signal (programming language) , residual , advertising , consumption (sociology) , set (abstract data type) , informative advertising , computer science , business , microeconomics , economics , online advertising , native advertising , mathematics , algorithm , social science , philosophy , linguistics , geometry , the internet , epistemology , sociology , world wide web , programming language
A model of advertising is presented in which consumption experience is an imperfect indicator of product quality. In equilibrium, neither price nor advertising signal the quality of newly introduced goods. Advertising of established products can be a signal of quality, but if it is, it must be an imperfect signal leaving residual uncertainty that influences consumers’ repurchase decision. A set of observable implications follow.