Products Liability, Signaling and Disclosure

Abstract

DAUGHETY AND Reinganum [2008] study price signaling and disclosure as two alternative ways of informing consumers about product safety. Most of the existing literature focuses on only one of these methods in isolation. For instance, many authors have explored firms' incentive for disclosing product information, e.g., in the form of product warnings. Others have studied the information revealed indirectly through firms' behavior such as pricing or advertising. Recognizing that firms often have at their disposal both instruments for conveying their safety information to consumers, the authors propose a new perspective that combines the two. I find this perspective quite insightful, and the authors deserve a lot of credit for suggesting it. My main comment is that this perspective promises to yield broader and richer insights than have been offered in the specific analysis performed in the paper. To make this point effectively warrants a short description of their model.