Price advertising and the deterioration of product quality

William P Rogerson*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

27 Scopus citations

Abstract

Arguments in favour of self-enforced bans on advertising by professionals often rely on the stylized fact that advertising can communicate information about price but not about quality. This being the case, it is argued that allowing professionals to advertise runs the risk that firms will compete vigorously over price at the expense of the quality of their product. This paper shows that even if price can communicate no information directly about quality, it can do so indirectly because price will be a signal of quality. Because of this, allowing advertising is shown to improve consumer welfare.

Original languageEnglish (US)
Pages (from-to)215-229
Number of pages15
JournalReview of Economic Studies
Volume55
Issue number2
DOIs
StatePublished - Jan 1 1988

ASJC Scopus subject areas

  • Economics and Econometrics

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