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Herding Behaviour and the Size of Customer Base as a Commitment to Quality

Author

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  • Choi, Chong Ju
  • Dassiou, Xeni
  • Gettings, Stephen

Abstract

This paper refers to herding behaviour as developed in Bikhchandani et al. (1992), Bannerjee (1992) and Choi and Scarpa (1994). We examine the behaviour of a potential customer who does not know how many of her predecessors decided not to purchase the product. We show that, ceteris paribus, a smaller (larger) customer base increases the likelihood of a positive (negative) cascade. Hence, a firm can signal its commitment to high quality (Schelling 1960) by choosing to develop a customer base that relies upon the customer's "private" information rather than one that relies on an informational cascade. Copyright 2000 by The London School of Economics and Political Science

Suggested Citation

  • Choi, Chong Ju & Dassiou, Xeni & Gettings, Stephen, 2000. "Herding Behaviour and the Size of Customer Base as a Commitment to Quality," Economica, London School of Economics and Political Science, vol. 67(267), pages 375-398, August.
    • Handle: RePEc:bla:econom:v:67:y:2000:i:267:p:375-98
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    Cited by:

    1. Pastine, Tuvana & Pastine, Ivan, 2005. "Signal Accuracy and Informational Cascades," CEPR Discussion Papers 5219, C.E.P.R. Discussion Papers.
    2. Kim, Jikyung (Jeanne) & Dong, Hang & Choi, Jeonghye & Chang, Sue Ryung, 2022. "Sentiment change and negative herding: Evidence from microblogging and news," Journal of Business Research, Elsevier, vol. 142(C), pages 364-376.
    3. Pastine, Tuvana, 2005. "Social Learning in Continuous Time: When are Informational Cascades More Likely to be Inefficient?," CEPR Discussion Papers 5120, C.E.P.R. Discussion Papers.
    4. Dassiou, X. & Glycopantis, D., 2011. "A tree formulation for signaling games," Working Papers 11/07, Department of Economics, City University London.
    5. Stone, Daniel F. & Miller, Steven J., 2013. "Leading, learning and herding," Mathematical Social Sciences, Elsevier, vol. 65(3), pages 222-231.

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