Brands' quality levels, prices, and advertising outlays: Empirical evidence on signals and information costs

For nearly 200 products evaluated by Consumer Reports we calculated rank correlations between brands' quality ratings and prices and advertising outlays. These correlations are related in cross-section to novel measures of buyers' information portfolios. Quality-price correlations increase with the scope for vertical differentiation and decline for innovative and ''convenience'' goods. Positive quality-advertising associations mainly reflect verifiable information about ''quality'' attributes. Evidence consistent with price as a quality signal is confined to frequent but unimportant purchases; for these ''convenience'' goods high prices might induce the maintenance of high quality. Advertising is not found to serve as a quality signal.