Date of this Version
Credence goods are often delivered to consumers via a vertical channel where the true quality of the good is determined by a manufacturer (an upstream channel member), while consumers' quality perceptions are driven by the observable signals of quality sent by a retailer (a downstream channel member). We study product misrepresentation in a vertical channel with asymmetric information about true product quality and focus on conditions that incentivize downstream channel members to misrepresent product quality to consumers. We develop a model with credulous consumers who rely on seller signals of quality to determine their expected utility from consumption of goods. The model shows that product misrepresentation rises as an equilibrium outcome due to actions of both the manufacturer and the retailer. We suggest that channel design can be a mechanism mitigating the level of misrepresentation. Specifically, adding more retailers in a channel can reduce the extent of misconduct and can increase the profits of the channel members.
B2B Marketing, misrepresentation, quality, product delivery, channel design
Cohen-Vernik, D., Yildirim, P., & Mittal, V. (2015). Misrepresentation of Credence Goods and Channel Design. http://dx.doi.org/10.2139/ssrn.2552807
Advertising and Promotion Management Commons, Business Administration, Management, and Operations Commons, Business Analytics Commons, Business and Corporate Communications Commons, Management Sciences and Quantitative Methods Commons, Marketing Commons, Operations and Supply Chain Management Commons
Date Posted: 15 June 2018