In a market where one firm has more information about product quality than its competitors, which strategy can the better-informed firm use to signal its quality effectively?

The better‑informed firm can use a costly signal, such as offering a long‑term warranty, to show its confidence in product quality. By committing to a costly guarantee, the firm shows that it expects customers to trust its claims, because a low‑quality product would make the warranty expensive. Competitors cannot easily imitate the warranty without risking losses if they actually have lower quality. For example, a smartphone maker that offers a two‑year warranty on its devices signals that it believes its phones are reliable, and customers who value quality will notice and prefer it. This strategy turns private information into a visible, credible promise that influences buyer choices.