Slving Quality Issues

Question 1

Voluntary Disclosure

Answer 1

But it has to verifiable, or else everyone would claim to be a high quality (e.g. cheap talk). So it could be independently assessed - firms might voluntarily submit themselves to outside assessment/inspection in order to demonstrate their high quality.

E.g. The Nation Student Survey Scheme, Professional standard bodies, used cars assessed by AA etc.

Question 2

Comprehensive Warranties

Answer 2

In effect, the firm punishes itself if the product turns out to be of low quality (note that relatively new car makers tend to offer longer warranties.

Question 3

Other means of getting Information

Answer 3

People can get information on price through search, also information on other characteristics, perhaps (which?)

But there are potentially complementary sources of information, such as advertising. Of course, such information may be biased. The type of advertising is likely to depend on the type of good.

Some types of good, for example credence goods, may benefit (firms and consumers) via mechanisms that provide some form of quality certification, because the consumer cannot ascertain for themselves at the time, and the firm’s advertising may not be believable.