IDEAS home Printed from https://ideas.repec.org/p/hal/journl/halshs-00105857.html
   My bibliography  Save this paper

Discrete Choices under Social Influence:Generic Properties

Author

Listed:
  • Denis Phan

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

We consider a model of socially interacting individuals that make abinary choice in a context of positive endogenous externalities. The modelencompasses, as particular cases, several models presented in the sociologyand economics literature. We mainly (but not only) decline the modelwithin a market context: the binary choice is to buy or not a given goodat a price posted by a monopolist, and the latter determines the price inorder to maximize his profit. Putting the price to zero in the customerssystem allows to model adoption of norms and other collective issues. Thispaper extends previous result to the case of a generic distribution of theIndividual Preferences or Willingnesses to Pay (IWP).We show that the model properties depend on the modality class (thenumber of maxima) of the IWP probability distribution function (pdf),and on its smoothness properties. The main results are summarized onphase diagrams whose axes are the parameters of the model, namely, thedifference between the average IWP over the population and the postedprice, and the strength of the social component (externality), both measuredin units of the variance of the IWP distribution. In such phasediagram we represent the boundaries limiting regions where the systempresents different types of equilibria (e.g. unique or multiple).We derive generic properties of the demand (or adoption) curve, whichare shown to depend only on qualitative features of the population heterogeneity:the modality (number of maxima), the smoothness, the variance(second moment) and the type of support (compact or infinite) of the underlyingIWP distribution. These alone determine the qualitative featuresof the collective outcome.The case of a monomodal pdf (a single maximum) is investigated indetails. When the social influence is small with respect to the width of theIWP distribution, the aggregate demand exhibits features similar to theone of “classical” demand curves in economics, with a continuously decreasingadoption rate with increasing prices. However, beyond a criticalvalue of the ratio between social influence/variance of the IWP distributionthe inverse demand function exhibits a non classical behaviour: itis a decreasing function at low and high adoption rates but has a nonmonotonic behaviour in some intermediate range reaching a maximum atsome (possibly large) value of the adoption rate – and this even if thedistribution of preferences is monomodal –. As a result, depending on thedifference between the average IWP and the price, there are either oneor two stable equilibria. Thus, taking into account a positive (additive)externality in the market context yields a more general family of demandcurves that the classical ones.Finally, we study the generic properties of a monopolistic market. Fora large enough social influence strength (compared to the variance of theIWP distribution), the optimal strategy for the monopolist exhibits adrastic jump from one with a high price and a low number of customers,to one of low price and a large number of customers. This discontinuityarises even in the parameter region where the customers system exhibitsa single equilibrium.

Suggested Citation

  • Denis Phan, 2006. "Discrete Choices under Social Influence:Generic Properties," Post-Print halshs-00105857, HAL.
  • Handle: RePEc:hal:journl:halshs-00105857
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00105857
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below 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.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paolo Dai Pra & Fulvio Fontini & Elena Sartori & Marco Tolotti, 2011. "Endogenous equilibria in liquid markets with frictions and boundedly rational agents," Working Papers 7, Department of Management, Università Ca' Foscari Venezia.
    2. Lo Schiavo, Mauro & Prinari, Barbara & Gronski, Jessica A. & Serio, Angelo V., 2015. "An artificial neural network approach for modeling the ward atmosphere in a medical unit," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 116(C), pages 44-58.
    3. Mirta B. Gordon & Jean-Pierre Nadal & Denis Phan & Viktoriya Semeshenko, 2012. "Entanglement between Demand and Supply in Markets with Bandwagon Goods," Papers 1209.1321, arXiv.org, revised Dec 2012.
    4. Y. P. Ma & S. Gonçalves & S. Mignot & J.-P. Nadal & M. B. Gordon, 2009. "Cycles of cooperation and free-riding in social systems," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 71(4), pages 597-610, October.
    5. D. Sornette, 2014. "Physics and Financial Economics (1776-2014): Puzzles, Ising and Agent-Based models," Papers 1404.0243, arXiv.org.
    6. M. B. Gordon & J. R. Iglesias & V. Semeshenko & J. P. Nadal, 2009. "Crime and punishment: the economic burden of impunity," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 68(1), pages 133-144, March.
    7. Jean-Philippe Bouchaud, 2012. "Crises and collective socio-economic phenomena: simple models and challenges," Papers 1209.0453, arXiv.org, revised Dec 2012.
    8. Kindler, A. & Solomon, S. & Stauffer, D., 2013. "Peer-to-peer and mass communication effect on opinion shifts," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(4), pages 785-796.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00105857. 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: (CCSD). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.