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On the Informational Role of Quantitites: Durable Goods and Consumers' Word-of-Mouth Communication

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  • Vettas, Nikolaos

Abstract

A dynamic incomplete information game is set up to study the introduction of a durable good when consumers can learn the quality of the good from previous buyers. High sales today imply fewer potential buyers tomorrow but each of them with better information about the good. Consumers also update their beliefs when they do not directly receive information: in equilibrium, no news is bad news. The quantities supplied by a high quality firm are the closed form solution of a stochastic dynamic programming problem. A low quality firm follows a "fly-by-night" strategy, randomizing between selling in different periods.

Suggested Citation

  • Vettas, Nikolaos, 1996. "On the Informational Role of Quantitites: Durable Goods and Consumers' Word-of-Mouth Communication," Working Papers 96-10, Duke University, Department of Economics.
    • Handle: RePEc:duk:dukeec:96-10
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    Cited by:

    1. Nicolás Figueroa & Carla Guadalupi, 2017. "Convincing early adopters: Price signals and Information transmission," Documentos de Trabajo 486, Instituto de Economia. Pontificia Universidad Católica de Chile..
    2. Maarten Janssen & Santanu Roy, 2004. "On durable goods markets with entry and adverse selection," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(3), pages 552-589, August.
    3. Marc Santugini, 2020. "On the consumer problem under an informational externality," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 149-161, April.
    4. Carla Guadalupi, 2018. "Learning quality through prices and word‐of‐mouth communication," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(1), pages 53-70, March.
    5. Alcalá, Francisco & González-Maestre, Miguel & Martínez-Pardina, Irene, 2014. "Information and quality with an increasing number of brands," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 109-117.
    6. Maarten C. W. Janssen & Vladimir A. Karamychev, 2002. "Cycles and multiple equilibria in the market for durable lemons," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(3), pages 579-601.
    7. Starkov, Egor, 2023. "Only time will tell: Credible dynamic signaling," Journal of Mathematical Economics, Elsevier, vol. 109(C).
    8. Kováč, Eugen & Schmidt, Robert C., 2014. "Market share dynamics in a duopoly model with word-of-mouth communication," Games and Economic Behavior, Elsevier, vol. 83(C), pages 178-206.
    9. Davide Crapis & Bar Ifrach & Costis Maglaras & Marco Scarsini, 2017. "Monopoly Pricing in the Presence of Social Learning," Management Science, INFORMS, vol. 63(11), pages 3586-3608, November.
    10. Søren Johansen & Anders Ryghn Swensen, 2021. "Adjustment coefficients and exact rational expectations in cointegrated vector autoregressive models," CREATES Research Papers 2021-10, Department of Economics and Business Economics, Aarhus University.
    11. Navarro, Noemí, 2012. "Price and quality decisions under network effects," Journal of Mathematical Economics, Elsevier, vol. 48(5), pages 263-270.
    12. Moraga-Gonzalez, Jose Luis, 2000. "Quality uncertainty and informative advertising," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 615-640, May.
    13. Ramon Caminal & Xavier Vives, 1999. "Price Dynamics and Consumer Learning," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(1), pages 95-131, March.
    14. Noemí Navarro, 2008. "Quality provision under referral consumption," Working Papers 2008-12, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
    15. Hsiaw, Alice, 2014. "Learning tastes through social interaction," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 64-85.
    16. NAVARRO, Noemí, 2006. "Asymmetric information, word-of-mouth and social networks: from the market for lemons to efficiency," LIDAM Discussion Papers CORE 2006002, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    17. Kosfeld, M., 1999. "Individual decision making and social interaction," Other publications TiSEM 69e75ff4-8036-4cf5-a270-1, Tilburg University, School of Economics and Management.
    18. Marco Ottaviani, "undated". "Monopoly Pricing with Social Learning," ELSE working papers 035, ESRC Centre on Economics Learning and Social Evolution.
    19. James D. Campbell, 2015. "Localized price promotions as a quality signal in a publicly observable network," Quantitative Marketing and Economics (QME), Springer, vol. 13(1), pages 27-57, March.
    20. Pier-Andre Bouchard St-Amant, 2013. "Externalities Social Value And Word Of Mouth," Working Paper 1301, Economics Department, Queen's University.
    21. Sorensen, Alan T., 2004. "Bestseller Lists and Product Variety: The Case of Book Sales," Research Papers 1878, Stanford University, Graduate School of Business.

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