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Market Diffusion with Consumer-Based Bilateral Learning

Author

Listed:
  • Hiroshi Kitamura

    (Faculty of Economics, Sapporo Gakuin University)

  • Akira Miyaoka

    (Graduate School of Economics, Osaka University)

Abstract

This paper analyzes the market diffusion of a new product whose quality is uncertain. Consumers learn the product quality by observing the history of market outcomes. Firms cannot observe how consumers evaluate the product quality; instead, they learn by observing consumer behavior. New entry occurs gradually because of informational externalities. This dual uncertainty contributes to an S-shaped diffusion of the new product with declining prices.

Suggested Citation

  • Hiroshi Kitamura & Akira Miyaoka, 2009. "Market Diffusion with Consumer-Based Bilateral Learning," Discussion Papers in Economics and Business 09-13-Rev, Osaka University, Graduate School of Economics, revised Sep 2011.
    • Handle: RePEc:osk:wpaper:0913r
    as

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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0913R.pdf
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    References listed on IDEAS

    as
    1. Carl Shapiro, 1983. "Optimal Pricing of Experience Goods," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 497-507, Autumn.
    2. Nikolaos Vettas, 1998. "Demand and Supply in New Markets: Diffusion with Bilateral Learning," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 215-233, Spring.
    3. Nikolaos Vettas, 2000. "Investment dynamics in markets with endogenous demand," Journal of Industrial Economics, Wiley Blackwell, vol. 48(2), pages 189-203, June.
    4. Dirk Bergemann & Juuso Valimaki, 1997. "Market Diffusion with Two-Sided Learning," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 773-795, Winter.
    5. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-239, March.
    6. Steven Klepper & Elizabeth Graddy, 1990. "The Evolution of New Industries and the Determinants of Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 27-44, Spring.
    7. Hiroshi Kitamura, 2010. "Capacity Expansion In Markets With Inter‐Temporal Consumption Externalities," Australian Economic Papers, Wiley Blackwell, vol. 49(2), pages 127-148, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Experience Goods; Quality Uncertainty; Bilateral Learning; S-shaped Diffusion.;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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