Why Do Market Shares Matters? An Information-Based Theory
We analyse the informational content of market shares and prices in a dynamic duopoly model in which consumers have heterogenous information on the quality differential (q) of two goods. It is shown that when firms are poorly informed about q, and therefore the ability of prices to reveal information is limited, consumers rationally believe that a firm with a high market share is likely to produce a high-quality good. As a result, firms try to signal-jam the inferences of consumers and compete for market shares beyond the level explained by short-run profit maximization. The consequence is that the market is more competitive in the first stages of the game and approaches the benchmark one-shot full information equilibrium prices as consumers and firms learn about q. Further, it is found that consumers display herd behaviour with the consequence that they learn q slowly, slowing down, in turn, the rate of convergence of prices to their benchmark levels. When firms are informed about q, and prices have the potential to signal quality, multiple equilibria may exist, but there is always one equilibrium in which market shares are a positive signal of quality.
(This abstract was borrowed from another version of this item.)
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||1992|
|Date of revision:|
|Contact details of provider:|| Postal: 08193, Bellaterra, Barcelona|
Phone: 34 93 592 1203
Fax: +34 93 542-1223
Web page: http://pareto.uab.cat
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:aub:autbar:192.92. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Xavier Vila)
If references are entirely missing, you can add them using this form.