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On the Informational Role of Quantities: Durable Goods and Consumers' Word-of-Mouth Communication

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  • Vettas, Nikolaos
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    Abstract

    A dynamic incomplete information game is set up to study the introduction of a durable good when consumers can learn its quality from previous buyers. High sales today imply fewer potential buyers tomorrow, but each buyer will have better information about the good. Consumers are fully rational and can update their beliefs, even when they do not directly receive information; in equilibrium, no news is bad news. A low-quality firm follows a 'fly-by-night' strategy, randomizing over the timing of sales. A high-quality firm spreads out its sales more smoothly, solving a stochastic dynamic programming problem. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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    Bibliographic Info

    Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

    Volume (Year): 38 (1997)
    Issue (Month): 4 (November)
    Pages: 915-44

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    Handle: RePEc:ier:iecrev:v:38:y:1997:i:4:p:915-44

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    Cited by:
    1. Maarten C. W. Janssen & Vladimir A. Karamychev, 2002. "Cycles and multiple equilibria in the market for durable lemons," Economic Theory, Springer, vol. 20(3), pages 579-601.
    2. Kováč, Eugen & Schmidt, Robert C., 2013. "Market Share Dynamics in a Duopoly Model with Word-of-Mouth Communication," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79994, Verein für Socialpolitik / German Economic Association.
    3. Pier-Andre Bouchard St-Amant, 2013. "Externalities, Social Value and Word of Mouth: Notions of Public Economics on Networks," Working Papers 1301, Queen's University, Department of Economics.
    4. Navarro, Noemí, 2012. "Price and quality decisions under network effects," Journal of Mathematical Economics, Elsevier, vol. 48(5), pages 263-270.

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