Strategic Firms and Endogenous Consumer Emulation

Philipp Kircher, Andrew Postlewaite

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Pages (from-to)621-661
Number of pages41
JournalQuarterly Journal of Economics
Volume123
Issue number2
DOIs
Publication statusPublished - May 2008

Fingerprint

Dive into the research topics of 'Strategic Firms and Endogenous Consumer Emulation'. Together they form a unique fingerprint.

Cite this