Resource title

Strategic firms and endogenous consumer emulation

Resource image

image for OpenScout resource :: Strategic firms and endogenous consumer emulation

Resource description

Better-informed consumers may be treated preferentially by firms because their consumption serves as a quality signal for other customers. For normal goods this results in wealthy individuals being treated better than poor individuals. We investigate this phenomenon in an equilibrium model of social learning with heterogeneous consumers and firms that act strategically. Consumers search for high-quality firms and condition their choices on observed actions of other consumers. When they observe consumers who are more likely to have identified a high-quality firm, uninformed individuals will optimally emulate those consumers. One group of consumers arise endogenously as “leaders” whose consumption behavior is emulated. Follow-on sales induce firms to give preferential treatment to these lead consumers, which reinforces their learning.

Resource author

Resource publisher

Resource publish date

Resource language

en

Resource content type

application/pdf

Resource resource URL

http://eprints.lse.ac.uk/29699/1/STRATEGIC_FIRMS_AND_ENDOGENOUS_CONSUMER_%28publisher_version%29.pdf

Resource license