Communicating Quality: A Unified Model of Disclosure and Signaling

31 Pages Posted: 5 Feb 2007

See all articles by Andrew F. Daughety

Andrew F. Daughety

Department of Economics, Vanderbilt University

Jennifer F. Reinganum

Vanderbilt University - College of Arts and Science - Department of Economics

Date Written: January 2007

Abstract

Firms communicate product quality attributes to consumers through a variety of channels, such as pricing, advertising, releases of research reports and test results, or warranties and returns policies. The conceptualization of the economics of such communication is that it takes on one of two alternative forms when quality is exogenous: 1) disclosure of quality through a credible direct claim; 2) signaling of quality via producer actions that influence buyers' beliefs about quality. In general, these two literatures have ignored one-another. In this paper we argue that disclosure and signaling are two sides of a coin and that firms should be viewed as choosing which means of communication they will employ. Moreover, we show that integration of these two alternatives leads to a number of new implications about disclosure, signaling, firm preferences over type, and the social efficiency of the channel of communication employed.

Keywords: disclosure, signaling, quality, efficiency

JEL Classification: D82, L15, K13

Suggested Citation

Daughety, Andrew F. and Reinganum, Jennifer F., Communicating Quality: A Unified Model of Disclosure and Signaling (January 2007). Available at SSRN: https://ssrn.com/abstract=961012 or http://dx.doi.org/10.2139/ssrn.961012

Andrew F. Daughety (Contact Author)

Department of Economics, Vanderbilt University ( email )

PMB 351819
2301 Vanderbilt Place
Nashville, TN 37235-1819
United States
615-322-3453 (Phone)
615-343-8495 (Fax)

HOME PAGE: http://my.vanderbilt.edu/andrewdaughety/

Jennifer F. Reinganum

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States
615-322-2937 (Phone)
615-343-8495 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
209
Abstract Views
1,685
Rank
264,034
PlumX Metrics