Lore Vandewalle

Thematic seminars
Development and political economy seminar

Lore Vandewalle

Graduate Institute Geneva
Customer Knowledge and the Price-Quality Gradient
Joint with
Julia Cajal-Grossi, Chris Woodruff

MEGA Salle Carine Nourry

MEGA - Salle Carine Nourry

Maison de l'économie et de la gestion d'Aix
424 chemin du viaduc
13080 Aix-en-Provence

Friday, March 15 2024| 11:00am to 12:15pm

Timothée Demont: timothee.demont[at]univ-amu.fr
Habiba Djebbari: habiba.djebbari[at]univ-amu.fr


We unpack constraints that limit quality upgrading by carpentry workshops in Uganda. Low quality can limit the price of items in the market, squeezing the returns and stifling firm growth. A natural prescription is to produce higher quality. However, we observe that prices do not systematically reward quality. This may reflect consumer preference for low-quality products or a lack of information to value items correctly. We conduct a randomised control trial to uncover whether consumers can discern quality and whether the provision of information can correct (if needed) the price-quality gradient. Consumers rank five wooden items according to their quality and provide their willingness to pay for each item. A treatment group receives information on the most critical dimensions for quality discernment. After this, quality rankings and willingness to pay are elicited again. We find that the information intervention leads to a correction of quality rankings in the right direction, whereby regular consumers catch up with the knowledge displayed by carpenters. Finally, the intervention steepens the price-quality gradient. Altogether, our study shows that information frictions account, at least in part, for the incentives for quality provision in the market.