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Herding Behaviour and the Size of Customer Base as a Commitment to Quality

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  • Chong Ju Choi
  • Xeni Dassiou
  • Stephen Gettings

Abstract

This paper refers to herding behaviour as developed in Bikhchandani et al. (1992), Bannerjee (1992) and Choi and Scarpa (1994). We examine the behaviour of a potential customer who does not know how many of her predecessorsdecided not to purchase the product. We show that, ceteris paribus,a smaller (larger) customer base increases the likelihood of a positive(negative) cascade. Hence, a firm can signal its commitment to high quality(Schelling 1960) by choosing to develop a customer base that relies upon thecustomer's ‘private’ information rather than one that relies on an informational cascade.

Suggested Citation

  • Chong Ju Choi & Xeni Dassiou & Stephen Gettings, 2000. "Herding Behaviour and the Size of Customer Base as a Commitment to Quality," Economica, London School of Economics and Political Science, vol. 67(267), pages 375-398, August.
    • Handle: RePEc:bla:econom:v:67:y:2000:i:267:p:375-398
    DOI: 10.1111/1468-0335.00214
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