Observational Learning and Demand for Search Goods
AbstractWe develop a model of herds in which consumers observe only the aggregate purchase history, not the complete ordered history of search actions. We show that the purchasing information changes the conditions under which herds can occur for both low- and high-quality products. Inferior products are certain to be ignored; high quality products may be ignored, but complete learning may also occur. We obtain closed form solutions for the probabilities of these events and conduct comparative statics. We test the model's predictions using data from an online music market created by Salganik, Dodds, and Watts (2006). (JEL D11, D12, L82)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Journal: Microeconomics.
Volume (Year): 4 (2012)
Issue (Month): 1 (February)
Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
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- Nakajima, Daisuke & Masatlioglu, Yusufcan, 2013. "Choice by iterative search," Theoretical Economics, Econometric Society, vol. 8(3), September.
- Herrera, Helios & Hörner, Johannes, 2013. "Biased social learning," Games and Economic Behavior, Elsevier, vol. 80(C), pages 131-146.
- Babur De los Santos & Sergei Koulayev, 2012. "Optimizing Click-through in Online Rankings for Partially Anonymous Consumers," Working Papers 2012-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
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