Quality provision under referral consumption
I analyze incentives for provision of quality in a market for an experience good. There is a single producer who is choosing quality and price taking into account three features. First, consumers do not know the quality of the good before purchasing it but use their acquaintances in order to obtain information about it. Second, consumers assign a common initial willingness-to-pay before information transmission takes place. Third, the social network of acquaintances is known to the producer. I define an equilibrium concept taking the point of view of the producer and characterize the set of resulting equilibria for any possible social network. One implication from this characterization is that, if there is a maximal level of quality (given by technological knowledge) that can be chosen, the producer may choose lower levels of quality as the population of consumers is getting more internally connected. This is due to free-riding of information by consumers when quality levels are low. In addition, I identify necessary and sufficient conditions for a new producer arriving in the market to provide a lower quality level though a higher price than the initial producer.
|Date of creation:||Oct 2008|
|Date of revision:|
|Contact details of provider:|| Postal: Plaza del Ejido s/n 29071, Málaga|
Web page: http://webdeptos.uma.es/THEconomica/malagawpseries/METC.html
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fudenberg, Drew & Ellison, Glenn, 1995.
"Word-of-Mouth Communication and Social Learning,"
3196300, Harvard University Department of Economics.
- Corneo, Giacomo & Jeanne, Olivier, 1999. "Segmented communication and fashionable behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 39(4), pages 371-385, July.
- NAVARRO, Noemí, 2006. "Asymmetric information, word-of-mouth and social networks: from the market for lemons to efficiency," CORE Discussion Papers 2006002, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Bramoulle, Yann & Kranton, Rachel, 2007. "Public goods in networks," Journal of Economic Theory, Elsevier, vol. 135(1), pages 478-494, July.
- Vettas, Nikolaos, 1996.
"On the Informational Role of Quantitites: Durable Goods and Consumers' Word-of-Mouth Communication,"
96-10, Duke University, Department of Economics.
- Vettas, Nikolaos, 1997. "On the Informational Role of Quantities: Durable Goods and Consumers' Word-of-Mouth Communication," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 915-44, November.
When requesting a correction, please mention this item's handle: RePEc:mal:wpaper:2008-12. 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: (Samuel Danthine)
If references are entirely missing, you can add them using this form.