NDLI: On the use of labels in credence goods markets

Content Provider	Springer Nature Link
Author	Bonroy, Olivier Constantatos, Christos
Copyright Year	2008
Abstract	We analyze credence goods markets in the case of two firms. Consumers know that the quality of the good varies but do not know which firm is of high quality. First, we show that the high quality producer may be unable to monopolize the market, or even to survive in some cases, in situations where it is efficient and trusted by all consumers. Second, although a label restoring full information improves welfare, it may also reduce both firms’ profits by intensifying competition. Since even the high quality producer may not wish to label its product, in such cases the label must be mandatory. Third, an imperfect label which moves everybody’s beliefs closer to the truth without restoring full information may produce adverse results on market structure and welfare, either by increasing or by reducing the variance of beliefs.
Starting Page	237
Ending Page	252
Page Count	16
File Format	PDF
ISSN	0922680X
Journal	Journal of Regulatory Economics
Volume Number	33
Issue Number	3
e-ISSN	15730468
Language	English
Publisher	Springer US
Publisher Date	2008-02-05
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Credence goods Incomplete information Label Vertical differentiation Microeconomics Public Finance & Economics Industrial Organization
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics

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On the use of labels in credence goods markets