Gloria and Jay are looking to sell her family’s sauce to a larger company. They each use a different tactic to make the product more appealing. In doing this, they’re trying to increase the demand for the sauce. Unfortunately, they don’t coordinate their strategies in advance and Jay blows the deal. In fact, there’s a lot of information that Gloria has hidden from Jay. She has long had a surplus of sauce that she has been keeping in storage lockers across town. Gloria has likely paid a lot of money for all of the storage. What do sellers usually do when they have a surplus? Are Gloria’s past actions consistent with traditional economic principles of rationality? Consider sunk cost and marginal costs.
(Note: this scene is an example of adverse selection. Gloria knows that her product is no good but they are trying to signal not only that it’s good but also that it’s special, almost magic.)
See more: adverse selection, advertising, asymmetric information, demand, information economics, marketing, preferences, product differentiation, profit, rationality, sunk cost, supply, tastes and preferences