Social Labeling: Quality and the Value of Image

Abstract

What makes a good valuable are not only its intrinsic characteristics but also the image associated with it. I model quality provision by a monopolist when consumers have private information about their preference for quality and their image concern. Image concerns never increase the total amount of quality sold in the market. Homogeneous image concern only rises prices but leaves qualities unchanged. Heterogeneity in image motivation induces a distortion in the allocation of quality. Not all consumers who buy high quality in absence of image concerns find it optimal to do so once image is taken into account. If image motivation is positively correlated with preferences for quality, it can even induce the total provision of quality to go down.