We introduce a search model where products differ in horizontal attributes and unobserved quality (“experience goods”), firms can establish reputation. show that the inability of consumers to observe before purchase significantly changes how frictions affect market performance. In equilibrium, higher costs reduce match values increase price but boost firms’ investment product quality. Under pla...

Abstract The modern era of wine journalism has provided abundant information about wines and widespread use numerical rating systems. A tiny difference, especially at the top distribution ratings, may have striking consequences on sales investment returns. This article provides a general framework to obtain consensus among tasters’ opinions (reflected as ratings) via three subsequent stages: no...

This paper empirically analyzes the determinants of demand in the German automobile industry. Our primary goal is to refine the existing literature on that topic by exploring the impact of uniqueness seeking behaviour of individuals on the demand schedule. Using a dataset on the segment of compact cars in the German market, we show that consumers have an intrinsic need for uniqueness seeking, a...

A legislative change in takeoff and landing restrictions at LaGuardia Airport provides an opportunity to study the effect of an exogenous shock to product quality on prices in the airline industry. I test how the price response varies with the degree of competition in the market. I find that prices fall by $1.42 on average for each additional minute of flight delay, and that the price response ...

If profit maximization is the objective of a firm, new information about quality should affect firm behavior only through its effects on market demand. I consider an alternate model in which suppliers are motivated by a desire to perform well in addition to profit. The introduction of quality “report cards” for cardiac surgery in Pennsylvania provides an empirical setting to isolate the relativ...

Consider trade conducted via a platform, such as an online app store or a farmers market. The quality sellers choose for their products affects the surplus trade generates. Because the platform’s profit depends on that surplus, the platform can have an incentive to regulate quality. This is true even if quality is observable at time of purchase or if sellers can develop reputations concerning q...

I study how consumers respond to competing pieces of information that differ in their degree of complexity and informativeness. In particular, I study the choice of refrigerators in the U.S., where a mandatory disclosure labeling program provides detailed information about energy cost, and a certification labeling program provides a simple binary-star rating related to energy use. I find that t...

I study the conversion of 13,000 miles of railroad track in the U.S. South to standard gauge on May 31 and June 1, 1886 as a large-scale natural experiment in compatibility. Using route-level freight traffic data, I find a large redistribution of traffic from steamships to railroads that declines with distance, with no effect on prices or aggregate shipments due to carriers’ anticompetitive con...

We provide elementary insights into the effectiveness of certification to increase market transparency. In a market with opaque product quality, sellers use certification as a signaling device, while buyers use it as an inspection device. This difference alone implies that seller-certification yields more transparency and higher social welfare. Under buyer-certification profit maximizing certif...

Allowing for innovation dynamics in the software market, this paper studies the conditions under which standardization in the hardware market arises and persists over time. In the model, software firms repeatedly invest in quality upgrades, compete in the product market, and make exit as well as entry decisions. The results show that, in general, excess inertia does not occur. A platform become...