14th journées Louis-André Gérard-Varet

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Multi-attribute quality competition with imperfect signals
Wanda Mimra, Katharina Huesmann

Last modified: 2015-03-15

Abstract


We model competition for a multi-attribute service, like health care services,
where consumers observe attribute quality imprecisely before deciding on a
provider. High quality in one attribute is more important in terms of ex post
utility. Attribute quality is stochastic, providers can shift resources in order to
increase expected quality in some attributes. Consumers rationally focus on
attributes depending on signal precision and beliefs about the providers' re-
source allocations. When signal precision is such that consumers focus weakly
on the less important attribute, any Perfect Bayesian Nash Equilibrium is in-
efficient. Increasing signal precision can reduce welfare, as the positive effect of
better provider selection is overcompensated by the negative effect that a shift
in consumer focusing has on provider quality choice. We discuss the providers'
incentives for information disclosure.

Keywords


multi-attribute service, quality signals, focusing