Research and Publications Label Confusion: The Groucho Effect of
Uncertain Standards 2011, Management Science Rick Harbaugh, John
W. Maxwell, Beatrice Roussillon Labels certify that a product
meets some standard for quality, but often consumers are unsure
of the exact standard that the label represents. Focusing on the
case of eco-labels for environmental quality, we show how even
small amounts of uncertainty can create consumer confusion that
reduces or eliminates the value to firms of adopting voluntary
labels. First, consumers are most suspicious of a label when a
product with a bad reputation has it, so labels are often
unpersuasive at showing that a seemingly bad product is actually
good. Second, label proliferation aggravates the effect of
uncertainty, causing the informativeness of labels to decrease
rather than increase. Third, uncertainty makes labeling and non-
labeling equilibria more likely to coexist as the number of
labels increases, so consumers face greater strategic
uncertainty over how to int