Marketing Papers

Document Type

Working Paper

Date of this Version

1-10-2015

DOI

10.2139/ssrn.2552807

Abstract

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.

Comments

This is an unpublished manuscript.

Keywords

B2B Marketing, misrepresentation, quality, product delivery, channel design

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Date Posted: 15 June 2018