CERGE-EI (a joint workplace of Charles University and the Economics Institute of the Academy of Sciences of the Czech Republic)
Cite this article as:
Celik, L. Rev Ind Organ (2014) 44: 161. doi:10.1007/s11151-013-9409-5
I analyze if the excessive quality disclosure finding of the “classical literature” extends to environments in which consumers have a downward-sloping demand. While the answer is affirmative, there are at least two situations under which disclosure is socially insufficient: (1) when there are quality levels that are too low to generate any positive demand; and (2) when the prior beliefs place sufficiently higher weight on lower qualities. In both cases, non-disclosure by the seller leads to a severe reduction in the perceived quality, thereby significantly lowering the demand and the quantity consumed.
MonopolyQuality uncertaintyVerifiable information disclosure