Product Testing in Markets for Experience Goods

  • Florian Spitzer (Speaker)

Activity: Talk or presentationScience to science


We examine the effectiveness of a product testing institution in a market for experience goods where reputation formation is not feasible. In our setup, sellers commit ex ante to a quality level (high or low). Buyers can - in addition to buying immediately and leaving the market - pay a fee to get a noisy signal about the quality chosen by the matched seller. We show the existence of a mixed perfect Bayesian equilibrium in which sellers provide high quality with positive probability, while buyers mix between buying immediately and acquiring information. We vary the cost of the signal such that the mixed equilibrium exists in a low-cost treatment but not in a high-cost treatment. The experimental results show that the low-cost signal improves efficiency, but not to the extent as predicted by theory. Surprisingly, the high-cost signal - which is predicted to have no effect - also improves efficiency compared to a control treatment where no signal is available.
Period6 Oct 20179 Oct 2017
Event titleEuropean meeting of the Economic Science Association
Event typeUnkonwn
Degree of RecognitionNational

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 101017 Game theory
  • 502010 Public finance