Quality Indicators: in Theory and in Fact

In recent literature, it has been suggested that consumers need have no knowledge of product quality as a number of quality indicators (or signals) may be used as substitutes. Very little attention has been paid to the empirical verification of these studies. The present paper is devoted to the issue of how well these indicators perform, using market data provided by consumer magazines from three countries. The results strongly indicate that price is a poor quality indicator. The paper also presents some evidence that suggests that seller reputation and easily observable characteristics are also poor indicators.