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Word‐of‐mouth communication and search

Author

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  • Arthur Campbell
  • C. Matthew Leister
  • Yves Zenou

Abstract

We develop a word‐of‐mouth search model where information flows from the old to the new generation for an experience good with unknown quality. We study the features of the social network that determine product quality and welfare and characterize the demand‐side (under provision of search effort) and supply‐side (inefficient entry by firms) factors that result in inefficiencies. One striking result is to show that the more connected but also the less‐unequal a friendship network is (in the sense of second order stochastic dominance of the degree distribution), the less can disreputable (low‐quality) firms thrive in equilibrium.

Suggested Citation

  • Arthur Campbell & C. Matthew Leister & Yves Zenou, 2020. "Word‐of‐mouth communication and search," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 676-712, September.
    • Handle: RePEc:bla:randje:v:51:y:2020:i:3:p:676-712
    DOI: 10.1111/1756-2171.12337
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    Cited by:

    1. Atabek Atayev, 2021. "Truly Costly Search and Word-of-Mouth Communication," Papers 2110.00032, arXiv.org.
    2. Alexei Parahonyak & Nick Vikander, 2024. "Strategic Use of Product Delays to Shape Word-of-Mouth Communication," Economics Series Working Papers 1032, University of Oxford, Department of Economics.
    3. Atayev, Atabek & Janssen, Maarten C. W., 2021. "Information acquisition and diffusion in markets," ZEW Discussion Papers 21-091, ZEW - Leibniz Centre for European Economic Research.
    4. Atayev, Atabek, 2021. "Truly costly search and word-of-mouth communication," ZEW Discussion Papers 21-090, ZEW - Leibniz Centre for European Economic Research.
    5. Atabek Atayev & Maarten Janssen, 2021. "Information Acquisition and Diffusion in Markets," Papers 2109.15288, arXiv.org.

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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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