Strategic Firms and Endogenous Consumer Emulation
AbstractBetter-informed consumers may be treated preferentially by firms because their consumption serves as a quality signal for other customers. For normal goods this results in wealthy individuals being treated better than poor individuals. We investigate this phenomenon in an equilibrium model of social learning with heterogeneous consumers and firms that act strategically. Consumers search for high-quality firms and condition their choices on observed actions of other consumers. When they observe consumers who are more likely to have identified a high-quality firm, uninformed individuals will optimally emulate those consumers. One group of consumers arise endogenously as "leaders" whose consumption behavior is emulated. Follow-on sales induce firms to give preferential treatment to these lead consumers, which reinforces their learning. (c) 2008 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..
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Bibliographic InfoArticle provided by MIT Press in its journal Quarterly Journal of Economics.
Volume (Year): 123 (2008)
Issue (Month): 2 (05)
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Web page: http://mitpress.mit.edu/journals/
Other versions of this item:
- Philipp Kircher & Andrew Postlewaite, 2008. "Strategic Firms and Endogenous Consumer Emulation," PIER Working Paper Archive 08-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Philipp Kircher & Andrew Postlewaite, 2008. "Strategic firms and endogenous consumer emulation," LSE Research Online Documents on Economics 29699, London School of Economics and Political Science, LSE Library.
- H0 - Public Economics - - General
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