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Endogenous Quality in Social Learning

Author

Listed:
  • Lukyanov, Georgy
  • Shamruk, Konstantin
  • Logina, Ekaterina

Abstract

We study a dynamic reputation model with a fixed posted price where only pur-chases are public. A long-lived seller chooses costly quality; each buyer observes the purchase history and a private signal. Under a Markov selection, beliefs split into two cascades—where actions are unresponsive and investment is zero—and an interior region where the seller invests. The policy is inverse-U in reputation and produces two patterns: Early Resolution (rapid absorption at the optimistic cascade) and Dou-ble Hump (two investment episodes). Higher signal precision at fixed prices enlarges cascades and can reduce investment. We compare welfare and analyze two design levers: flexible pricing, which can keep actions informative and remove cascades for patient sellers, and public outcome disclosure, which makes purchases more informa-tive and expands investment.

Suggested Citation

  • Lukyanov, Georgy & Shamruk, Konstantin & Logina, Ekaterina, 2025. "Endogenous Quality in Social Learning," TSE Working Papers 25-1680, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:131019
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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