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Market Share Indicates Quality

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  • Amir Ban
  • Nati Linial
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    Abstract

    Market share and quality, or customer satisfaction, go hand in hand. Yet the inference that higher market share indicates higher quality is seldom made. The skepticism is in part fueled by elitism, the association of mass popularity with lower quality, and by cynicism, ascribing market leadership to an entrenched position. We find that though such skepticism is often justified, it is correct to make a Bayesian inference that the product with the higher market share has the better quality under rather tame assumptions.

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    File URL: http://ratio.huji.ac.il/sites/default/files/publications/dp590R.pdf
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    Bibliographic Info

    Paper provided by The Center for the Study of Rationality, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp590.

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    Length: 12 pages
    Date of creation: Oct 2011
    Date of revision:
    Handle: RePEc:huj:dispap:dp590

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    1. Fudenberg, Drew & Ellison, Glenn, 1995. "Word-of-Mouth Communication and Social Learning," Scholarly Articles 3196300, Harvard University Department of Economics.
    2. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
    3. Smallwood, Dennis E & Conlisk, John, 1979. "Product Quality in Markets Where Consumers are Imperfectly Informed," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(1), pages 1-23, February.
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