Trust Market Manufacturers Competition Strategic Research

In recent year product often occur quality problems and media consequently disclosedthe problems. Product problem becomes to be a hot issue of the society concern. If wemade a further research and we would find problem product have things in common whichthese products are called credence goods in economics. Credence goods is the kind of thegoods which consumers don’t know its’ quality before they buy the goods or they havealready used the goods. For example, milk powder and edible oil belong to credence oil.People usually think the survival of companies of the most important qualification rely onproduct quality with the aggravation of the market competition. Especially, whenmanufacturers have many strategic competition ways they should not sacrifice quality inorder to obtain profit which we call short-term behavior. When the manufacturers adoptstrategic competition they should put the product quality at the first place. But why didthey occur quality problem again and again such as milk powder? These credence goodswhich occur quality problem often are famous and big brand in China. In this background,we research quality problem which occur in recent years that is great significance.Consumers often have the confidence which is expensive and of high quality sinceconsumers don’t evaluate the product quality. That is to say high price was the worth highquality. At the same time consumers frequently obtain product information throughadvertising. Consumers have strong confidence to these credence goods which spent alarge amount money on advertisements. Thus this paper grasps this feature whichmanufacturers in credence goods market usually use price and advertisement as qualitysignal to convey quality information. This paper founds “credence goods price–advertisements signaling model. Through parameters setting the paper analyzedequilibrium state when credence goods manufacturers convey information of productquality through price and advertisements. The following conclusions are reached:(1) theproportion and income of high-end and low-end consumers will influence the signaltransmission of price-advertisement. When high-end consumers have not high incomeand low-end consumers have very low income and low-end consumers took a largeproportion it will appear pooling equilibrium of low quality credence goods in the market.(2) When the proportion and income of high-end consumers are high the manufacturers ofhigh-quality credence goods prefer to signal transmission of product quality with stronggovernment supervision. It will appear separate equilibrium of high quality and low qualitycredence goods in the market. When low-end consumers occupy a great proportion andhave very low income consumers still buy low quality credence goods even though the government supervision are strong.(3) It exists a critical value about governmentsupervision and consumers confidence under the precondition of low-end consumers’income above a certain value. The manufacturers of high quality are willing to displayingproduct quality with quality signal when government supervision and consumer confidenceexceed the critical value. And it works both ways. When low-end consumers have very lowincome it can’t improve credence goods manufacturers’ efforts of signal transmission eventhough strong government supervision and high consumer confidence.According to the conclusions from the model this paper will make a macro-statisticaldata analysis. Our macro-statistical data is from State Statistics Bureau and GeneralAdministration of Quality Supervision. From empirical research this paper draws theconclusion that manufacturers of credence goods will have low intention to show itsproduct quality when low-end customers are very large proportion. At this time if credencegoods occurs quality problem the government enhance the management of the qualitywhich can’t avoid the same product occur the same problem. On the on hand we shouldimprove consumer income and reduce low-end consumer proportion and on the other handenhance the management of the government in order to prevent such problem to occur.