Screening and signalling models have both been used to analyze the price-quality relationship. Both types of model have their shortcomings. An alternative approach is presented which involves endogenizing the quality control process. Firms voluntarily provide a warranty contract for their products and this, in turn, generates an incentive to control quality. Monopolistic and competitive markets are compared in respect of warranties, quality control, and the price-quality relationship. Copyright 1996 by Scottish Economic Society.
|Number of pages||14|
|Journal||Scottish Journal of Political Economy|
|Publication status||Published - Jan 1996|