10 - Information And Value Creation Flashcards
Disclosure
Informing consumers about à product’s benefits.can be performed by 3rd party certifiers.
Collective benefits if it establishes trust in the industry.
Shopping problem
Find the goods and services that best meet consumers’ need.
- sequential search: one seller at a time (high costs)
- simultaneous search: all at one (low costs)
Search cost and price elasticity of demand
The lower the search costs the higher the price elasticity.
Type of goods
- search goods
- experience goods
- credence goods (might never learn full value) ex: medical care
Theory of unraveling
Suggest that all firms even the worst will voluntarily disclose their quality. Stupid:
- requires sellers to cheaply and accurately assess their quality vs others
- assumes consumers have reasonable beliefs about the distribution of quality
- may increase customer sensitivity to quality and make huge losses
Government
Can establish minimum standards through licensing
Alternatives to disclosure
1- warranties: high volume
2- signaling: information about vertical positioning
3- branding: help differentiate goods (horizontal)
4- advertising: for experience goods
5- retailer reputation
Resolving the deception problem
Non profit firms: not permitted to use any revenues in excess of costs to augment the compensation of owners and managers.
Report card types and advantages and issues
Gather information on former experiences:
- trusted agent
- market reports
- internet-based ranking websites
Advantages:
1- consumers can more easily identify HQ sellers
2- give incentive to sellers to improve on quality (greater elasticity)
3- improve sorting by matching consumers who highly value quality to the best sellers
Issues:
- one time test
- incomplete
- multitasking
- teaching to the test
- agent principal problem
- gaming report
Measures of quality:
- outcome
- process
- income
Why not just outcome?
- unavailable
- difficult to obtain
- unusually high (bold reversion)
- different outcomes rpz different customers tastes
Focus on inputs and processes when
- they are positively linked to favorable outcomes
- inexpensive to measure process and inputs and anyone can obtain them
- they are not easily manipulated through multitasking
Customer satisfaction card
Biased and noisy measure because:
- people have different criterias
- incentive to exaggerate ratings
- reluctant to leave negative feedback
- author is unverifiable
- motivation bias
- survivor bias
- demographics bias (race, income, education)
Fighting biased ranking
- report median
- offer rewards when rating predicts peer ratings
- report scores on individual dimensions
- weighted average score that prioritise dimensions
- risk ajustement
Composite score
Enable the researcher to measure several metrics with just few score indicators
Certifiers market
Create value for consumers by helping them find best sellers. (Cost or complementary service) Depend on: - neutrality - unbiased information - accuracy of reviews
Certification bias: can cash in on their reputation by investing less accuracy or take bribes. Potential conflict of interest if they are paid by the firm and require data from the firm they certified (could have been manipulated)
