10 - Information And Value Creation

Question 1

Disclosure

Answer 1

Informing consumers about à product’s benefits.can be performed by 3rd party certifiers.
Collective benefits if it establishes trust in the industry.

Question 2

Shopping problem

Answer 2

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)

Question 3

Search cost and price elasticity of demand

Answer 3

The lower the search costs the higher the price elasticity.

Question 4

Type of goods

Answer 4

• search goods
• experience goods
• credence goods (might never learn full value) ex: medical care

Question 5

Theory of unraveling

Answer 5

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

Question 6

Government

Answer 6

Can establish minimum standards through licensing

Question 7

Alternatives to disclosure

Answer 7

1- warranties: high volume
2- signaling: information about vertical positioning
3- branding: help differentiate goods (horizontal)
4- advertising: for experience goods
5- retailer reputation

Question 8

Resolving the deception problem

Answer 8

Non profit firms: not permitted to use any revenues in excess of costs to augment the compensation of owners and managers.

Question 9

Report card types and advantages and issues

Answer 9

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

Question 10

Measures of quality:

Answer 10

• outcome
• process
• income

Why not just outcome?

• unavailable
• difficult to obtain
• unusually high (bold reversion)
• different outcomes rpz different customers tastes

Question 11

Focus on inputs and processes when

Answer 11

• 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

Question 12

Customer satisfaction card

Answer 12

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)

Question 13

Fighting biased ranking

Answer 13

• report median
• offer rewards when rating predicts peer ratings
• report scores on individual dimensions
• weighted average score that prioritise dimensions
• risk ajustement

Question 14

Composite score

Answer 14

Enable the researcher to measure several metrics with just few score indicators

Question 15

Certifiers market

Answer 15

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)

Question 16

Financial certification market

Answer 16

• Generous rating to keep customer

- dilemma of analysts for career prospects (young => punish if take risk)

Question 17

Concrete case, prices could be driven by

Answer 17

• increase in demand
• exogenous cut in capacity
• increase in input prices
• collusion

Question 18

Concrete case, if less buyers more sellers

Answer 18

The increase in market transparency would
Have been less of a concern. Indeed, as the law of demand stipulates, the higher the demand, the lower the price. Consumers have more buying power.

Question 19

Collusion is easier when:

Answer 19

• few sellers

- local competiton