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Increasing consumer surplus through a novel product testing mechanism

Author

Listed:
  • Vollstaedt, Ulrike
  • Imcke, Patrick
  • Brendel, Franziska
  • Ehses-Friedrich, Christiane
Abstract
Our study proposes a novel mechanism to reduce information asymmetry about product quality between buyers and sellers. Product testing organizations like Consumer Reports (US) and Stiftung Warentest (Germany) seek to reduce this asymmetry by providing credible information. However, limited capacity leads to testing of only a select number of product models, often bestsellers, which can yield suboptimal information. After outlining our mechanism, we develop a game to derive testable predictions. We show theoretically that a unique Nash equilibrium exists in which our mechanism yields optimal information, equivalent to a world of complete information, while selecting bestsellers does not. Subsequently, we confirm experimentally that our mechanism increases consumer surplus.

Suggested Citation

  • Vollstaedt, Ulrike & Imcke, Patrick & Brendel, Franziska & Ehses-Friedrich, Christiane, 2020. "Increasing consumer surplus through a novel product testing mechanism," Ruhr Economic Papers 887, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:887
    DOI: 10.4419/96973026
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    References listed on IDEAS

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    More about this item

    Keywords

    Consumer surplus; information asymmetry; product quality; product test; information disclosure; mechanism design; experiment;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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