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Strategic firms and endogenous consumer emulation

Kircher, Philipp and Postlewaite, Andrew (2008) Strategic firms and endogenous consumer emulation. Quarterly Journal of Economics, 123 (2). p. 621. ISSN 0033-5533

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Abstract

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.

Item Type: Article
Official URL: http://www.mitpressjournals.org/loi/qjec
Additional Information: © 2008 The MIT Press
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: H - Public Economics > H0 - General
Sets: Departments > Economics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 20 Oct 2010 08:32
URL: http://eprints.lse.ac.uk/29699/

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