Price as a Signal of Product Quality: Some Experimental Evidence

Giovanni Mastrobuoni, Franco Peracchi, Aleksey Tetenov

Research output: Contribution to journalArticle (Academic Journal)

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Abstract

We use experimental data to disentangle the signaling and budgetary effects of price on wine demand. The experimental design allows us to isolate the two effects in a simple and intuitive way. The signaling effect is present and nonlinear: it is strongly positive between 3 euros and 5 euros and undetectable between 5 euros and 8 euros. We find a similar nonlinear price–quality relationship in a large sample of wine ratings from the same price segment, supporting the hypothesis that taster behavior in the experiment is consistent with rationally using prices as signals of quality. Price signals also have greater importance for inexperienced (young) consumers.
Original languageEnglish
Pages (from-to)135-152
JournalJournal of Wine Economics
Volume9
Issue number2
DOIs
Publication statusPublished - 3 Jul 2014

Keywords

  • pricing
  • product quality
  • signaling
  • wine ratings

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