Product Quality Signaling in Experimental Markets

In a series of eleven markets, sellers possessed products that were exogenously designated either grade "regular" or grade "super." Supers were valued more by buyers but grade not be observed by buyers prior to purchase. Sellers could add costly units of quality their products that were observable and valued by buyers. The data are analyzed with information models, signaling equilibrium models, and pooling models. A variety behaviors are observed across the eleven markets. Signaling is observed in most markets some markets approaching the most efficient signaling equilibrium. Pooling or partial occurs in a few markets. The performance seems to be sensitive to the relative cost signaling and the market institutional setting.