Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of cases
- Preface
- Part I Getting started
- Part II Market power
- Part III Sources of market power
- Part IV Pricing strategies and market segmentation
- Part V Product quality and information
- 12 Asymmetric information, price and advertising signals
- 13 Marketing tools for experience goods
- Part VI Theory of competition policy
- Part VII R&D and intellectual property
- Part VIII Networks, standards and systems
- Part IX Market intermediation
- Appendices
- Index
13 - Marketing tools for experience goods
from Part V - Product quality and information
- Frontmatter
- Contents
- List of figures
- List of tables
- List of cases
- Preface
- Part I Getting started
- Part II Market power
- Part III Sources of market power
- Part IV Pricing strategies and market segmentation
- Part V Product quality and information
- 12 Asymmetric information, price and advertising signals
- 13 Marketing tools for experience goods
- Part VI Theory of competition policy
- Part VII R&D and intellectual property
- Part VIII Networks, standards and systems
- Part IX Market intermediation
- Appendices
- Index
Summary
In the previous chapter, we have looked at advertising and prices as two strategic variables that might be used to overcome asymmetric information problems. In this chapter, we will look at additional instruments that belong to the toolbox of a firm, such as a car manufacturer, which is confronted with asymmetric information. We focus on two broad classes of instruments, namely warranties (in Section 13.1) and branding (in Section 13.2).
Warranties can be an effective tool to separate high from low-quality products. A potential drawback is that consumers may not handle products with care if they hold a full warranty. This leads to a double moral hazard problem and makes this option possibly rather unattractive.
Branding is another important tool for producers of experience goods. It is an essential success factor for many companies since they want to be recognized over time and across products. Firms can then rely on their brand that stems from repeated interaction over time and on the use of one brand for several products so that consumers can correlate their beliefs about product quality across products – this latter practice is known as umbrella branding. An additional insight is that competition may substantially affect the logic of branding.
Warranties
Warranties are an everyday feature of experience goods. For instance, cars, consumer electronics and appliances typically come with warranties. Warranties establish liability between the manufacturer and the buyer in the event that an item fails (i.e., if the item is unable to perform satisfactorily its intended function when properly used).
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- Chapter
- Information
- Industrial OrganizationMarkets and Strategies, pp. 309 - 330Publisher: Cambridge University PressPrint publication year: 2010