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Learning How to Consume and Returns to Product Promotion

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  • Zakaria Babutsidze

Abstract

This paper presents the computational model of consumer behaviour. We consider two sources of product specific consumer skill acquisition, termed here as learning how to consume: learning by consuming and consumer socialization. Consumers utilize these two sources in order to derive higher valuations for products they are consuming. In this framework we discuss the behavior of returns to product promotion relative to the changes in product characteristics, such as quality and user-friendliness, as well as in case of varying intensity of consumer socialization. The main finding is that in case of duopoly the dependence of returns to advertising on product quality is not monotonic as it has been claimed by earlier studies. Additional important finding indicating the importance of the models with interacting agents is that returns to advertising exhibit qualitatively different behavior in case of zero intensity of consumer socialization.

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Bibliographic Info

Paper provided by Max Planck Institute of Economics, Evolutionary Economics Group in its series Papers on Economics and Evolution with number 2009-05.

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Date of creation: Jun 2009
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Handle: RePEc:esi:evopap:2009-05

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Keywords: Consumer skills; learning by consuming; consumer socialization; product promotion; returns to advertising Length 23 pages;

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References

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  1. Vande Kamp, Philip R. & Kaiser, Harry M., 1998. "Optimal Temporal Policies in Fluid Milk Advertising," Research Bulletins 122676, Cornell University, Department of Applied Economics and Management.
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  20. Babutsidze, Zakaria & Cowan, Robin, 2008. "Habit Formation, Information Exchange and the Social Geography of Demand," MERIT Working Papers 047, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
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