Labels matter, especially when it comes to intangibles in the market place. Intangibles cannot be readily observed. Fuel efficiency, energy effeciency, auto-safety, and software security are all examples of intangibles. Without a label identifying the "amount" of an intangible supplied by a given manufacturer, it is troublesome for buyers to receive trustworthy, objective information from a seller because sellers are biased in the transaction. As a result, an intangible will remain undersupplied.
The effect of labeling is as profound as its absence. The video below illustrates the impact of the NHTSA 5-star labeling system on the auto market. A 2009 Chevy Malibu and a 1959 Chevy Bel Air collide head-on. Which vehicle would you want to be in?
Labels matter.
Comments