Signaling theory applies to both the demand and supply side.

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Signaling theory posits that individuals use certain signals (e.g. educational degrees, work experience, certifications) to convey valuable information about their competencies and characteristics to potential employers or customers. On the demand side, customers respond to the signals sent by firms regarding product quality, reputation, or brand image. On the supply side, firms seek to signal their qualities and capabilities to attract and retain customers and employees. Therefore, the application of signaling theory is two-sided, involving both the demand and supply dynamics of markets.

Signaling Theory Applies to Both the Demand and Supply Side