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Market Share Indicates Quality

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  • Amir Ban
  • Nati Linial

Abstract

Market share and quality, or customer satisfaction, go hand in hand. Yet the inference that higher market share indicates higher quality is seldom made. The skepticism is in part fueled by elitism, the association of mass popularity with lower quality, and by cynicism, ascribing market leadership to an entrenched position. We find that though such skepticism is often justified, it is correct to make a Bayesian inference that the product with the higher market share has the better quality under rather tame assumptions.

Suggested Citation

  • Amir Ban & Nati Linial, 2011. "Market Share Indicates Quality," Discussion Paper Series dp590, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    • Handle: RePEc:huj:dispap:dp590
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    File URL: http://ratio.huji.ac.il/sites/default/files/publications/dp590R.pdf
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    References listed on IDEAS

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    1. Glenn Ellison & Drew Fudenberg, 1995. "Word-of-Mouth Communication and Social Learning," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(1), pages 93-125.
    2. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    3. Dennis E. Smallwood & John Conlisk, 1979. "Product Quality in Markets Where Consumers are Imperfectly Informed," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(1), pages 1-23.
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