Answers are grounded in this paper and cite their sources.
We present a signaling model, based on ideas of Phillip Nelson, in which both the introductory price and the level of directly "uninformative" advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good. Repeat purchases play a crucial role in our model. A second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals.
No takes yet. Share an insight, caveat, or question.
Milgrom et al. (1986) studied this question.
Synapse has enriched 10 related papers. Consider them for comparative context: