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Learning tastes through social interaction

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  • Hsiaw, Alice

Abstract

This paper offers an information-based model of social interaction, and analyzes optimal investment and pricing of services that facilitate interaction in a duopoly. Agents have uncertainty over their preferences but are aware that they are correlated with others’, so there exists an incentive to communicate with others in the population. When a firm's good can be bundled with a coordination mechanism for its consumers, its value is endogenously determined due to a consumption externality. Although this mechanism increases total surplus, it is underprovided and consumer surplus decreases.

Suggested Citation

  • Hsiaw, Alice, 2014. "Learning tastes through social interaction," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 64-85.
    • Handle: RePEc:eee:jeborg:v:107:y:2014:i:pa:p:64-85
    DOI: 10.1016/j.jebo.2014.08.010
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    More about this item

    Keywords

    Social interaction; Coordination; Consumption externality; Product differentiation;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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