Consumer Protection in Markets with Informationally Weak Buyers
Volume: Volume 12, No. 2
Issue: Autumn 1981
Pages: pp. 562-573
Authors: Charles Stuart
Title: Consumer Protection in Markets with Informationally Weak Buyers
Abstract: Resource allocation in a market where product quality is variable and where buyers can purchase partial information on product quality is investigated. It is shown that (1) (inefficient) equilibria with only low quality units can always exist; (2) (efficient) equilibria with only high quality units are possible only under surprisingly strong information conditions; and (3) "mixed" equilibria, in which both high and low quality units are produced and sold and in which buyers obtain partial unit-specific quality information, can also exist. The implications of the results for (potentially) efficiency-increasing regulation are discussed.
JEL Classification
Consumer Protection (9213)