Does Price Signal Quality? Strategic Implications of Price as a Signal of Quality for the Case of Genetically Modified Food

When products are differentiated and quality is highly subjective (e.g., fashion or art), novel (e.g., a new feature), or difficult to verify prior to purchase (e.g., credence attributes), consumers may turn to price as a signal of quality. Products containing genetically modified (GM) ingredients meet each of these criteria, i.e., GM ingredients are novel, their presence is difficult to verify, and their impact on subjective quality may be viewed differently across individuals with the same knowledge. We add to the limited empirical literature on consumers' use of price as a quality signal by testing for non-monotonicity of consumer demand in price for GM products using data collected from a nationally representative mail survey featuring several hypothetical product choice scenarios. We find mixed evidence across three products for non-monotonicity of demand in price and argue the results suggest that survey respondents use price as a signal of the quality of GM products for at least one of the three products investigated. Implications for firm strategy and regulation are discussed.

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Selected Paper 135905

 Record created 2017-04-01, last modified 2019-08-26

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