Price and Advertising Signals of Product Quality

  title={Price and Advertising Signals of Product Quality},
  author={Paul R. Milgrom and John Roberts},
  journal={Journal of Political Economy},
  pages={796 - 821}
We present a signaling 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. A second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with… 
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Information and Consumer Behavior
  • P. Nelson
  • Economics
    Journal of Political Economy
  • 1970
Consumers are continually making choices among products, the consequences of which they are but dimly aware. Not only do consumers lack full information about the prices of goods, but their
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