Package Size as a Signal of Quality  (with Chun Martin Qiu)

•  Abstract:  This study investigates how package size can signal product quality. A high-type firm can signal quality by reducing its number of package sizes produced to a single package size. Signaling by reduction in package sizes takes place if the proportion of quality-responsive consumers in the market falls into the intermediate range. When the proportion of quality-responsive consumers exceeds the intermediate range, the high-type firm can still signal quality under some conditions by distorting the magnitude of the single package size downwards. Moreover, under some conditions, package size can alone signal high quality, whereas under other conditions, size and price together signal high-quality. This paper also indicates that a single, small package size serves not only as a signal of high quality, but also as a device for targeting quality-responsive consumers.
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