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Random Encounters and Information Diffusion about Product Quality

Author

Listed:
  • Jean J. Gabszewicz

    (CORE, Université Catholique de Louvain)

  • Marco A. Marini

    (University of Rome La Sapienza and CREI)

  • Skerdilajda Zanaj

    (DEM, University of Luxembourg)

Abstract

This paper explores how social interactions among consumers shape markets. In a two-country model, consumers meet and exchange information about the quality of the goods. As information spreads, the demands evolve, affecting the prices and quantities manufactured by pro?t-maximizing fi?rms. We show that market prices with informational frictions reach the duopoly price with full information, at the limit. However, this convergence can take two different paths depending on the size asymmetry between countries. In particular, when countries are of very different sizes, the single market does not immediately turn into a duopoly and monopoly prices may persist for several periods. Hence, the price-reducing trade effects may take longer to appear. In view of an intense globalization process, understanding how social meetings affect market outcomes is critical for understanding the performance of international economic integration.

Suggested Citation

  • Jean J. Gabszewicz & Marco A. Marini & Skerdilajda Zanaj, 2021. "Random Encounters and Information Diffusion about Product Quality," Working Papers 2021.02, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2021.02
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    1. Jean J. Gabszewicz & Marco A. Marini & Skerdilajda Zanaj, 2023. "Random encounters and information diffusion about product quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(2), pages 348-376, April.
    2. Lu, Xinqing & Zhu, Erpu & Campbell, Loyle & Hafner, Manfred & Noussan, Michel & Raimondi, Pier Paolo, 2021. "Comparison between China, the EU and the US's climate and energy governance: How policies are made and implemented at different levels," FEEM Working Papers 317745, Fondazione Eni Enrico Mattei (FEEM).
    3. Xinqing Lu & Erpu Zhu & Loyle Campbell & Manfred Hafner & Michel Noussan & Pier Paolo Raimondi, 2021. "Comparison between China, the EU and the US’s climate and energy governance: How policies are made and implemented at different levels," Working Papers 2021.34, Fondazione Eni Enrico Mattei.

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    More about this item

    Keywords

    Consumer Encounters; Information Diffusion; Country Size; Product Quality;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F15 - International Economics - - Trade - - - Economic Integration
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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