Quality signaling strategies of experience goods in online-offline channel integration

Many firms nowadays integrate online and offline channels to deliver quality information by prices and experience services. This paper explores the optimal signaling strategies when a high-type firm introduces product-irrelevant experience services. We find that the optimal strategies depend highly on the quality difference and consumers' prior belief. When the quality difference is small, the high-type firm can earn the first-best profit. However, when it is big and the prior belief is low, the firm may suffer from a loss in profit. Furthermore, the cost of pure display service plays an important role in deciding the product-irrelevant experience service.

Automated summary

This paper examines the optimal signaling strategies for a high-type firm when introducing product-irrelevant experience services, and finds that the strategies depend on the quality difference and consumers' prior belief. The findings suggest that the firm can maximize profit when the quality difference is small, but may suffer from profit loss when the difference is big and prior belief is low.