SEARCH GOODS VS. EXCPERIECNE GOOD

Search goods vs. excperiecne good

Search Goods vs. Excperiecne Goods

INTRODUCTION

In "Information and Consumer Behavior," Nelson (1970) defines a search good as one whose qualities can be determined by the consumer before purchase. Likewise, he defines an experience good as one whose qualities cannot be determined before purchase. This paper focuses on two aspects of search and experience goods that were examined in the above article and in a later paper by the same author (Nelson 1974, 43-78)

The two aspects of search and experience goods that will be examined in this paper are: 1) the differences between the levels of retail and national-brand advertising that would be expected for search goods versus experience goods; and 2) differences in advertising intensity between these two types of goods. (Nelson 1974, 43-78)

2. BACKGROUND

The seminal work in the economics of information was done by Stigler (1961). In that research, Stigler analyzed the influence of information on market price. He found that price advertising reduced the dispersion of asking prices. Rothschild (1973) surveyed the theoretical literature regarding the effect of incomplete information on market equilibrium. Akerlof (1970) focused on the relationship between information and quality using the automobile market as an example. He found that lack of consumer information led to a reduction in the average quality of used cars and also in the size of the market. The concept of "credence" qualities, i.e., those qualities that cannot be evaluated in normal use, was added to the theory of the economics of information by Darbi and Karni (1973). They show that consumer fraud and related practices result from significant costs involved both in the determination of product quality and in the effective vertical integration of buyer and seller through an exchange of property rights. Spence (1973, 2002) applied the term "market signaling" to the economics of information relating to labor market-hiring decisions. He found that lack of information leads, under certain conditions, to the use of signals such as education to assess prospective employee productivity.1 Wilde (1980) surveyed theoretical research on consumer information acquisition including both models of individual behavior and market equilibrium. (Nelson 1974, 43-78)

More recently, using Yellow Pages data(Nelson 1974, 43-78) found that the provision of consumer information for experience goods is greater than that of search goods. Furthermore, he found that because of greater consumer mobility, these advertisements contained more information in the Washington, DC area than in Baltimore, MD, where consumers develop alternative sources of product information. In a subsequent paper, using newspaper advertisements from 1986, Laband (1991) found that seller provided information is a positive function of product price. (Nelson 1974, 43-78)

3. RETAIL VS. NATIONAL-BRAND ADVERTISING

As pointed out by Nelson (1970), the advantages of retail advertising will be greater for stores that sell search goods than for stores that sell experience goods:

Retail advertising can attract customers to a store who would not have been customers for a national brand if it had been advertised. A response to an advertisement need not involve the purchase of the good ...