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Herding Behaviour and the Size of Customer Base as a Commitment to Quality

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  • Choi, Chong Ju
  • Dassiou, Xeni
  • Gettings, Stephen

Abstract

This paper refers to herding behaviour as developed in Bikhchandani et al. (1992), Bannerjee (1992) and Choi and Scarpa (1994). We examine the behaviour of a potential customer who does not know how many of her predecessors decided not to purchase the product. We show that, ceteris paribus, a smaller (larger) customer base increases the likelihood of a positive (negative) cascade. Hence, a firm can signal its commitment to high quality (Schelling 1960) by choosing to develop a customer base that relies upon the customer's "private" information rather than one that relies on an informational cascade. Copyright 2000 by The London School of Economics and Political Science

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 67 (2000)
Issue (Month): 267 (August)
Pages: 375-98

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Handle: RePEc:bla:econom:v:67:y:2000:i:267:p:375-98

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Cited by:
  1. Pastine, Ivan & Pastine, Tuvana, 2005. "Signal Accuracy and Informational Cascades," CEPR Discussion Papers 5219, C.E.P.R. Discussion Papers.
  2. Dassiou, X. & Glycopantis, D., 2011. "A tree formulation for signaling games," Working Papers 11/07, Department of Economics, City University London.
  3. Stone, Daniel F. & Miller, Steven J., 2013. "Leading, learning and herding," Mathematical Social Sciences, Elsevier, vol. 65(3), pages 222-231.

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