CFDP 709

Price and Advertising Signals of Product Quality


Publication Date: June 1984

Pages: 30


We present a signalling model, based on ideas of Phillip Nelson, in which both the introductory price and the level of directly “uninformative” advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good. Repeat purchases play a crucial role in our model.

JEL Classification Codes:  026, 611, 530

See CFP: 676