Thursday, December 14, 2017

Competition and Product Misrepresentation

Daniel Goetz, Rotman School of Management explores Competition and Product Misrepresentation.

ABSTRACT: This paper examines the effect of competition on product quality when product quality is unobserved before purchase. Using a dataset that records the actual broadband internet speed consumers receive as well as the speed the provider claims is being delivered, I find that an additional broadband competitor raises the ratio of actual to claimed speeds for incumbents by between 23 and 32% within the first 6 months, but that this effect attenuates after 18 months. This increase is due to improvements in the actual speed, and not just reductions in the claimed speed. I recover the causal effect of competition on product misrepresentation by leveraging the launch of a broadband-capable satellite in mid-2012 and exploiting exogenous variation in suitability for satellite internet across U.S. counties. I provide suggestive evidence that the reduction in firms’ strategic misrepresentation of their products led to reduced misallocation of consumers across internet plans.

https://lawprofessors.typepad.com/antitrustprof_blog/2017/12/competition-and-product-misrepresentation.html

| Permalink

Comments

Post a comment