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Optimal firm behavior with consumer social image concerns and asymmetric information

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  • Sebald, Alexander
  • Vikander, Nick

Abstract

This paper explores how consumers’ belief-dependent social image concerns can affect firm strategic choices in a product market setting. We consider a theoretical framework with incomplete information where a profit-maximizing monopolist sets a price for its product, taking into account that consumers care about the belief that others hold about the product’s popularity. Throughout our analysis, we highlight the close connection between our dynamic psychological game and the literature on network effects. We show in particular that belief-dependent social image concerns generate equilibrium price distortions that do not arise in a network effect setting, and we explore the implications for consumer demand and firm profits.

Suggested Citation

  • Sebald, Alexander & Vikander, Nick, 2019. "Optimal firm behavior with consumer social image concerns and asymmetric information," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 311-330.
  • Handle: RePEc:eee:jeborg:v:167:y:2019:i:c:p:311-330
    DOI: 10.1016/j.jebo.2018.12.004
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    More about this item

    Keywords

    Social image; Optimal firm behavior; Consumer search;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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