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Price as a Signal of Product Quality: Some Experimental Evidence

Research output: Contribution to journalArticle

Original languageEnglish
Pages (from-to)135-152
JournalJournal of Wine Economics
Volume9
Issue number2
DOIs
DatePublished - 3 Jul 2014

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.

    Research areas

  • pricing, product quality, signaling, wine ratings

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  • Full-text PDF (accepted author manuscript)

    Rights statement: This is the accepted author manuscript (AAM). The final published version (version of record) is available online via Cambridge University Press at http://dx.doi.org/10.1017/jwe.2014.17. Please refer to any applicable terms of use of the publisher.

    Accepted author manuscript, 360 KB, PDF-document

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