Firms’ Information Acquisition with Heterogeneous Consumers and Trend

Yukiko Hirao ()
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Yukiko Hirao: Seikei University

Review of Industrial Organization, 2017, vol. 50, issue 3, No 4, 323-344

Abstract: 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.

Keywords: Herd behavior; Information acquisition; Location choices (search for similar items in EconPapers)
JEL-codes: D43 D8 L13 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11151-016-9534-z

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