ch10 information and value creation

consumers problem

find the seller offering highest V-P

sequential search

when search cost is high, buyers often have “threshold” V-P and buy from the first seller exceeding threshold

simultaneous search

when search cost is low, buyers gather information about many products before deciding which one to purchase

search good

buyers can easily compare product characteristics. often commodities and buyers choose solely on the basis of price

experience good

buyers cannot easily compare product characteristics and value information from others. buyers learn about quality after purchasing and using products

credence good

buyers cannot easily evaluate quality even after purchasing and using products

warranty

low quality firms cannot afford to offer —- and differentiate themselves by omission

branding

• brands help consumers associate product names with product attributes

• low quality firms cannot recover expensive advertising costs unless product is sold in high quantity

nonprofit status

if buyers believe firms are unable to profit from deception about quality, they believe incentives by firms to skimp on quality disappear

matchmaking

in horizontal differentiation, difficult to have agreement about product ranking

• experience goods depend on “like minded” buyers rating quality

• each buyer is relatively unique regarding their demographic profile and difficult to find a lot of similar buyers

• the internet is able to aggregate large amounts of buyer info