A warranty is most valuable as a signaling device when:
A) the buyer has much more information about the product than the seller does.
B) the seller has much more information about the product than the buyer does.
C) the buyer has much more information about his or her own preferences than the seller does.
D) neither the buyer nor the seller has good information about the product.
E) neither the buyer nor the seller has good information about consumer preferences.

Question

Quizplus · Accepted Answer

A warranty is most valuable as a signaling device when the seller has much more information about the product than the buyer does. This is because the warranty acts as a signal of quality from the seller to the buyer, reassuring the buyer that the product is of good quality despite the information asymmetry.

A Warranty Is Most Valuable as a Signaling Device When