The Judgment And Information Transmission Of Quality

The long-term formed rule of ’judge quality by price’is used consciously and unconsciously in everyday life. Although as early as1945, this phenomenon was proposed by American economist Tibor Scitovsky, there are only sporadic researches, and there is still no generally acknowledged theory to explain the essence of economic behind the phenomenon. Therefore, this essay mainly discuss the rationality and applicability of the rule of ’judge quality by price’, in other words, we try to find out the equilibrium conditions which can maintain "quality","price" match in incomplete information environment. In this essay, mainly review previous key literatures of theoretical researches, attempts to show scattered research findings within a clearer theoretical framework, and demonstrates the difficulty, the argument, current progress and the possible direction of future research on this issue. Meanwhile, based on previous key literatures, the observation of real-life as well as related thinking and understanding of the issue, I attempt to combine behavioral economics and information economics, imply the thought of behavior into the analysis framework of information economics to construct a three-stage model. Try to give one possible explanation of the phenomenon of ’judge quality by price’, and it is also my understanding of the relationship between’quality’and’price’relationship in miniature.In this essay, according to the logical order of transmission of information, we try to integrate the important documents. At present, most important literatures have shown that the efficiency of price signals is decided by the existence of quality-related marginal cost, furthermore the greater the difference, the easier to achieve a stable separating equilibrium. In the process of transmission, it’s undoubted that consumer preferences and beliefs is one crucial force that affects the final result. However since consumer behavior and subjective feelings have the characteristics of diversity, volatility, uncertainty and so on, it is difficult to modeled dynamically. So, most of the models transferred the participation of consumer in the form of static assumptions which is slightly stiff and rigid. On the other hand, information model generally discuss in the perspective of manufacturers, the motivation of using price signals and the corresponded efficiency are greatly influenced by the market structure. The required separation equilibrium conditions vary with market structure. In general, in the competitive market and monopoly markets, although the source of power to promote information revealed is different, usually through a premium of high-quality can efficient to deliver high-quality information. In the oligopoly market, situation is most complicated. Since compared with competitive markets, competitive constraints in oligopoly market weakened, while compared with monopoly markets, each provider does not have absolute market forces. These two main forces which promote the disclosure of quality information will change with the specific circumstances of the case, and the results of the game are extremely sensitive to the assumptions. Therefore different model’s personalities surpass their commonalities.The main innovation point of this paper is to build a three-stage model in monopoly market. In the model, I divided the process from the entry of new products to the market maturation into three phases:the introduction phase, the transition phase, and the maturity phase. In the information-starved introduction phase, take rational and irrational factors of the consumers’faith into consideration. Then the market in the transition section experiences two-way learning process and dynamic information exchange with fluctuations and adjustment, then gradually to reach maturity. The final market equilibrium results-’quality’,’price’ match further confirms the faith of ’judge quality by price’. From the entire process, the three-stage system is self-consistent, balance and stable. Compared with the previous model, the model has several innovations:First, add the thoughts of behavioral economics and integrate "irrational" factors into the information game. For example, in the introduction period, when manufacturers developed introduction price, they will take the irrational factors in consumers’judgment into consideration. Anchoring effect will influence pricing behavior of manufacturers who tend to avoid possible risks. In addition, during the transition period, the fluctuation mechanism of consumer utility is the core part to display the rational and irrational factors in consumer’s consumption process. Second, the dual definitions of quality. The definition of’quality’is vague in most previous models; often just assume manufacturers have private information about quality. Now in the new model, it is a bold attempt to combine subjective quality which based on consumer behavior and the objective quality which based on the production behavior of firms, trying to build a real dynamic game model. Third, increase the dynamic of the model and weak the cost impact. Almost in all the important models, as the public knowledge the factor of cost greatly influent the final result, which is not realistic. Therefore, the new model assumes that the production costs is also the private information of manufacturers and using the interaction between consumers and manufacturers to weaken the impact of costs, attempt to breakthrough equilibrium results diversification problem which results from the diverse relationship between cost and quality. Of course, the new model in the paper is only a simplified model and just gives a simply explanation of phenomenon of ’judge quality by price’. The model has some limitations and it’s to be further improved.The development of researches about the relationship of’quality’and’price’is not only has a significant theoretical meaning for building a more plentiful rigorous system of economic theory, but also have many potential applications in our daily life. It is hope that this paper can do some contribution to the developing of related research area, and the findings can help market participants to make better decision with high efficiency and accuracy, maintain the good functioning of market.