Question

If notorious firm behavior (i.e., defrauding a buyer of high-priced experience goods by delivering low quality) becomes known throughout the marketplace only with a lag of three periods, profits on high-quality transactions remain the same, and interest rates rise slightly, are customers more likely or less likely to agree to pay high prices for an experience good?

Answer 1

Answer:

Customers will less likely agree to pay high price for an experience good

Explanation:

Once a firms reputation is ruined or tarnished, a great number of customers will naturally lose trust as regards products from that firm. Most customer would not want to gamble with their money even with the slight increase in interests rates, it is expected that a firm should always deliver quality product on a consistent basis. Inconsistency in product quality will lead to a reduction in customer trust and overtime, customer base in general.