PRICE PREMIUM VARIATIONS AS A CONSEQUENCE OF BUYERS LACK OF INFORMATION

It appears that buyers sometimes knowingly pay a price that is higher than that justified by the relative quality of the product. Such a price premium is argued to be an economically rational attempt by quality-conscious buyers to ensure that the seller does not provide a lower than promised level of quality for experience products. Conversely, for search products, price premiums are argued to be the consequence of lack of search by buyers who are less quality conscious. Results from a survey conducted in an organizational buying setting indicate that buyers' tendency to pay a price premium for experience products increases with an increase in their quality consciousness, while for search products this tendency decreases with an increase in their quality consciousness. The implications of this findings are discussed; further analysis leads to additional speculation regarding some other mechanisms that buyers may use to assure product quality.