Consumer Deliberation and Quality Signaling

Consumers are often uncertain about their product valuation before purchase. They may bear the uncertainty and purchase the product without deliberation. Alternatively, consumers can incur a deliberation cost to nd out their true valuation and then make their purchase decision. This paper proposes that consumer deliberation about product valuation can be an endogenous mechanism to enable credible quality signaling. We demonstrate this point in a simple setup in which product quality influences the probability that the product has high valuation. We show that with endogenous deliberation there may exist a unique separating equilibrium in which the high-quality fi rm induces consumer deliberation by setting a high price whereas the low-quality fi rm prevents deliberation by charging a low price. Compared to the case of complete information, the price of the high-quality rm can be distorted upward to facilitate consumer deliberation, or distorted downward to avoid the low-quality fi rm's imitation. In an extension we show that dissipative advertising can facilitate quality signaling. The high-quality fi rm can utilize advertising spending to avert imitation from the low-quality fi rm without distorting price downward, earning a higher profi t than that without advertising. However, advertising mitigates the distortion at the expense of consumer surplus and social welfare