In a competitive market one might expect a strong positive relationship between price and product quality. This paper reports the results of an empirical investigation into the strength of the price-quality relationship. The data set consisted of 413 product tests, involving 6580 brands, published inConsumentengids from 1977–1986. For most products the relationship between price and quality was weak. Hypotheses were developed and tested to explain the variation of price-quality correlations across products. Further, price-quality correlations were found to be lower when the inflation rate was relatively high. It was concluded that, in general, price appears to be a poor market signal of quality.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Price excludes VAT (USA)
Tax calculation will be finalised during checkout.
Archibald, R.B., C.A. Haulman and C.E. Moody, Jr. (1983), ‘Quality, Advertising and Published Quality Ratings,’Journal of Consumer Research, 9, pp. 347–356.
Bodell, R.W., R.R. Kerton and R.W. Schuster (1986), ‘Price as a Signal of Quality: Canada in the International Context,’Journal of Consumer Policy, 9, pp. 431–444.
Chamberlin, E.H. (1953), ‘The Product as an Economic Variable,’Quarterly Journal of Economics, 67, pp. 1–29.
Clark, J.M. (1918), ‘Economics and Modern Psychology, I and II,’Journal of Political Economy, 26, pp. 1–30 and pp. 136–166.
Comanor, W.S. and Th.A. Wilson (1979), ‘The Effect of Advertising on Competition: A Survey,’Journal of Economic Literature, 17, pp. 453–476.
Curry, D.J. and D.J. Faulds (1986), ‘Indexing Product Quality: Issues, Theory, and Results,’Journal of Consumer Research, 13, pp. 134–145.
Dardis, R. and N. Gieser (1980), ‘Price and Quality of Durable Goods: Are They more Closely Related in the Seventies than in the Sixties?,’Journal of Consumer Policy, 4, pp. 238–248.
Gerstner, E. (1985), ‘Do Higher Prices Signal Higher Quality?,’Journal of Marketing Research, 22, pp. 209–215.
Friedman, M.P. (1967), ‘Quality and Price Considerations in Rational Consumer Decision Making,’Journal of Consumer Affairs, 1, pp. 13–23.
Hays, W.L. (1972),Statistics, Second Edition, New York.
Hjorth-Andersen, Chr. (1981), ‘Price and Quality of Industrial Products: Some Results of an Empirical Investigation,’Scandinavian Journal of Economics, 83, pp. 372–389.
Hjorth-Andersen, Chr. (1984), ‘The Concept of Quality and the Efficiency of Markets for Consumer Products,’Journal of Consumer Research, 11, pp. 708–718.
Jacoby, J., D.E. Speller and C.K. Berning (1974a), ‘Brand Choice Behavior as a Function of Information Load: Replication and Extension,’Journal of Consumer Research, 1, pp. 33–42.
Jacoby, J., D.E. Speller and C. Kohn (1974b), ‘Brand Choice Behavior as a Function of Information Load,’Journal of Marketing Research, 11, pp. 63–69.
Klein, B. and K.B. Leffler (1981), ‘The Role of Market Forces in Assuring Contractual Performance,’Journal of Political Economy, 89, pp. 615–641.
Kristensen, K. (1984), ‘Hedonic Theory, Marketing Research, and the Analysis of Complex Goods,’International Journal of Research in Marketing, 1, pp. 17–36.
Lancaster, K. J. (1979),Variety, Equity, and Efficiency, New York.
Malhotra, N.K. (1982), ‘Information Load and Consumer Decision Making,’Journal of Consumer Research, 8, pp. 419–430.
Maynes, E.S. (1976),Decision-Making for Consumers, New York.
Morris, R.T. and C.S. Bronson (1969), ‘The Chaos in Competition Indicated by Consumer Reports,’Journal of Marketing, 33, pp. 26–34.
Morris, R.T. and C.S. Bronson (1970), ‘The Potential Loss in Money Income to the American People by Haphazard Purchasing,’Journal of Consumer Affairs, 4, pp. 103–112.
Nelson, Ph. (1970), ‘Information and Consumer Behavior,’Journal of Political Economy, 78, pp. 311–329.
Oxenfeldt, A.R. (1950), ‘Consumer Knowledge: Its Measurement and Extent,’Review of Economics and Statistics, 32, pp. 300–316.
Palmquist, R.B. (1980), ‘Alternative Techniques for Developing Real Estate Price Indexes,’Review of Economics and Statistics, 62, pp. 442–448.
Riesz, P.C. (1978), ‘Price versus Quality in the Marketplace 1961–1975,’Journal of Retailing, 54, pp. 15–28.
Riesz, P.C. (1979), ‘Price-Quality Correlations for Packaged Food Products,’Journal of Consumer Affairs, 13, pp. 236–247.
Salop, S. and J. Stiglitz (1977), ‘Bargain and Ripoffs: A.Model of Monopolistically Competitive Price Dispersion,’Review of Economic Studies, 44, pp. 493–510.
Schwartz, A. and L.L. Wilde (1985), ‘Product Quality and Imperfect Information,’Review of Economic Studies, 52, pp. 251–262.
Scitovszky, T. (1945), ‘Some Consequences of the Habit of Judging Quality by Price,’Review of Economic Studies, 12, pp. 100–105.
Shapiro, C. (1983), ‘Premiums for High Quality Products as Returns to Reputations,’Quarterly Journal of Economics, 98, pp. 659–679.
Siegel, S. (1956),Nonparametric Statistics, New York.
Sproles, G.B. (1977), ‘New Evidence on Price and Product Quality,’Journal of Consumer Affairs, 11, pp. 63–77.
Steenkamp, J.-B.E.M. (1987), ‘Perceived Quality of Food Products and its Relationship to Consumer Preferences: Theory and Measurement,’Journal of Food Quality, 9, pp. 373–386.
Stigler, G. (1961), ‘The Economics of Information,’Journal of Political Economy, 69, pp. 213–225.
Sutton, R.J. and P.C. Riesz (1979), ‘The Effect of Product Visibility upon the Relationship between Price and Quality,’Journal of Consumer Policy, 3, pp. 145–150.
Tellis, G.J. and B. Wernerfelt (1987), ‘Competitive Price and Quality under Asymmetric Information,’Marketing Science, 6, pp. 240–253.
Wiggins, S.N. and W.J. Lane (1985), ‘Quality Uncertainty, Search, and Advertising,’American Economic Review, 73, pp. 881–894.
Wonnacott, R.J. and Th.H. Wonnacott (1979),Econometrics, Second Edition, New York.
Wright, P. (1975), ‘Consumer Choice Strategies: Simplifying vs. Optimizing,’Journal of Marketing Research, 12, pp. 60–67.
Yamada, Y. and N. Ackerman (1984), ‘Price-Quality Correlations in the Japanese Market,’Journal of Consumer Affairs, 18, pp. 251–265.
The author wishes to thank two anonymous referees for giving valuable comments on a previous draft of this article.
Rights and permissions
About this article
Cite this article
Steenkamp, JB.E.M. The relationship between price and quality in the marketplace. De Economist 136, 491–507 (1988). https://doi.org/10.1007/BF01803598
- Positive Relationship
- Product Quality
- International Economic
- Public Finance
- Empirical Investigation