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Firms’ Information Acquisition with Heterogeneous Consumers and Trend

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  • Yukiko Hirao

    (Seikei University)

Abstract

This paper analyzes firms’ location choices and information acquisition in a model of product differentiation with trend. The presence of an uncertain trend spot induces the firms not to follow the principle of maximal differentiation, unless the trend spot is expected to be near the ends of the city. Second, each firm has an incentive to acquire information about the exact trend spot. Consumer surplus is also higher when both firms are informed. Third, firms’ choice of product differentiation is excessive relative to the social optimum. Furthermore, in the social optimum, welfare is also higher when the planner is informed.

Suggested Citation

  • Yukiko Hirao, 2017. "Firms’ Information Acquisition with Heterogeneous Consumers and Trend," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(3), pages 323-344, May.
    • Handle: RePEc:kap:revind:v:50:y:2017:i:3:d:10.1007_s11151-016-9534-z
    DOI: 10.1007/s11151-016-9534-z
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    References listed on IDEAS

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    More about this item

    Keywords

    Herd behavior; Information acquisition; Location choices;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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