Premium
The Advertising of Credence Goods as a Signal of Product Quality
Author(s) -
Hahn Sunku
Publication year - 2004
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2004.00379.x
Subject(s) - credence good , credence , advertising , product (mathematics) , quality (philosophy) , economics , microeconomics , informative advertising , product differentiation , social welfare , business , information asymmetry , native advertising , online advertising , the internet , computer science , mathematics , philosophy , geometry , epistemology , machine learning , cournot competition , world wide web , political science , law
The advertising of credence goods is analysed in a similar way to the way Milgrom and Roberts analysed the advertising of experience goods. The existing literature on credence goods has not considered the possibility that some consumers have the expertise to assess the product's quality and the possibility that the producer can advertise. I assume these two points and show that there exists a unique equilibrium that survives the ‘intuitive criterion’. Also, it is shown that through encouraging producers to accept new technologies advertising may increase social welfare instead of just being a pure social cost.