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Communicating quality: a unified model of disclosure and signalling
Author(s) -
Daughety Andrew F.,
Reinganum Jennifer F.
Publication year - 2008
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2008.00046.x
Subject(s) - signalling , quality (philosophy) , variety (cybernetics) , product (mathematics) , business , channel (broadcasting) , microeconomics , industrial organization , marketing , economics , computer science , telecommunications , philosophy , epistemology , geometry , mathematics , artificial intelligence
Firms communicate product quality to consumers through a variety of channels. Economic models of such communication take two alternative forms when quality is exogenous: (i) disclosure of quality through a credible direct claim; or (ii) signalling of quality via producer actions that influence buyers' beliefs about quality. In general, these two literatures have ignored one another. We argue that firms should be viewed as choosing which means of communication they will employ. We show that integration of these two alternatives leads to new implications about disclosure, signalling, firm preferences over type, and the social efficiency of the channel of communication employed.