Price as a Signal of Product Quality: Some Experimental Evidence

Giovanni Mastrobuoni · Franco Peracchi · Aleksey Tetenov

7 citations0/0 files storedJournal of Wine Economics

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Wine Industry and Tourism Consumer Market Behavior and Pricing Economic and Environmental Valuation

Abstract

Abstract We use experimental data to disentangle the signaling and budgetary effects of price on wine demand. The experimental design allows us to isolate the two effects in a simple and intuitive way. The signaling effect is present and nonlinear: it is strongly positive between 3 euros and 5 euros and undetectable between 5 euros and 8 euros. We find a similar nonlinear price–quality relationship in a large sample of wine ratings from the same price segment, supporting the hypothesis that taster behavior in the experiment is consistent with rationally using prices as signals of quality. Price signals also have greater importance for inexperienced (young) consumers. (JEL Classification: D11, D12, D82)

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References

1983Premiums for High Quality Products as Returns to Reputations 1989The Effect of Price, Brand Name, and Store Name on Buyers' Perceptions of Product Quality: An Integrative Review 1987Competitive Price and Quality Under Asymmetric Information 2008Predicting the Quality and Prices of Bordeaux Wine 2008Do More Expensive Wines Taste Better? Evidence from a Large Sample of Blind Tastings 2008The Impact of Gurus: Parker Grades and en Primeur Wine Prices 2007The Pricing of Experience Goods: The Example ofen primeurWine 2010The importance of landscape in wine quality perception: An integrated approach using choice-based conjoint analysis and combination-based permutation tests

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