The Concept of Quality and the Efficiency of Markets for Consumer Products

Can consumers trust prices to be good quality indicators? Previous studies based on quality data from Consumer Reports have indicated that the relation of price to overall quality is quite weak. This paper demonstrates that these studies are methodologically invalid by showing that the concept of overall quality has many dimensions. To what extent do inefficient variants occur in the market? Previous studies have suggested that there is a considerable degree of inefficiency in the market. Alternative calculations imply that inefficient variants are in fact frequent, but that the loss to consumers is much lower than previously suggested.