Commitment, Consumer Choice and Product Quality Level
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| Title | Commitment, Consumer Choice and Product Quality Level
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| Author | Wang Xiayang and Fu Ke |
| Organization | Lingnan(University) College, Sun Yat-Sen University |
| Email | |
| Key Words | Commitment; Consumer Choice; Quality; Rational Expectations Equilibrium; Corporate Social Responsibility |
| Abstract | This paper studies the impact of corporate social responsibility on a producer’s quality investment decision and its evolution path. We start with a discrete choice and rational expectations equilibrium framework. We also analyze the relationship among commitment, consumer choice and producer’s quality investment decision. We show in this paper that without corporate social responsibility constraint and the basic price-consistency commitment a consumer’s rational consumption choice will lead to a low quality level. The quality level will be improved only limitedly when the producer keeps the price-consistency commitment whereas with both price- and quality-consistency commitment the consumer’s choice behavior will drive the market to achieve an equilibrium of quality-price-consistency and the quality will be improved to the highest. We also discuss the different mechanisms of guarantee considering the reality of food and pharmaceutical industry in China. We show that although a company’s self commitment will be a better choice, we still need to have strict quality supervision when non-commitment prevails. |
| Serial Number | WP387 |
| Time | 2012-09-27 |
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