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Trial Title
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Before
How a novel mechanism for product testing organizations improves markets with asymmetric information
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After
Increasing consumer surplus through a novel product testing mechanism
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Abstract
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Before
Sellers are often better informed about product quality than buyers. Product testing organizations like Consumer Reports (US) or Stiftung Warentest (Germany) can reduce this asymmetry by providing credible information. Due to limited capacities, however, the sample of tested product models – often bestsellers – may lead to suboptimal information. We propose a novel mechanism, and develop a game to derive testable predictions. We show theoretically that a unique Nash equilibrium exists in which our mechanism leads to optimal information, thus to the consumer surplus of a world of complete information, while selecting bestsellers does not. Subsequently, we confirm experimentally that our new mechanism increases consumer surplus.
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After
Our study proposes a novel mechanism to reduce information asymmetry about product quality between buyers and sellers. Product testing organizations like Consumer Reports (US) and Stiftung Warentest (Germany) seek to reduce this asymmetry by providing credible information. However, limited capacity leads to testing of only a select number of product models, often bestsellers, which can yield suboptimal information. After outlining our mechanism, we develop a game to derive testable predictions. We show theoretically that a unique Nash equilibrium exists in which our mechanism yields optimal information, equivalent to a world of complete information, while selecting bestsellers does not. Subsequently, we confirm experimentally that our mechanism increases consumer surplus.
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Last Published
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December 07, 2020 09:44 AM
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December 07, 2020 09:53 AM
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Additional Keyword(s)
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Before
asymmetric information, product quality, product test, information disclosure, unraveling, mechanism design, experiment
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After
consumer surplus, information asymmetry, product quality, product test, information disclosure, mechanism design, experiment
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