Random Encounters and Information Di§usion about Product Quality

Jean Gabszewicz, Marco Marini and Skerdilajda Zanaj

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores how social interactions among consumers shape markets. In a two-country model, consumers meet and exchange information about the quality of the goods. As information spreads, the demands evolve, affecting the prices and quantities manufactured by profit-maximizing firms. We show that market prices with informational frictions reach the duopoly price with full information, at the limit. However, this convergence can take two different paths depending on the size asymmetry between countries. In particular, when countries are of very different sizes, the single market does not immediately turn into a duopoly and monopoly prices may persist for several periods. Hence, the price-reducing trade effects may take longer to appear. In view of an intense globalization process, understanding how social meetings affect market outcomes is critical for understanding the performance of international economic integration.

Keywords: Consumer Encounters; Information Diffusion; Country Size; Product Quality (search for similar items in EconPapers)
JEL-codes: D8 F2 F22 L1 L13 L15 L22 (search for similar items in EconPapers)
Date: 2021-02-07
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https://mpra.ub.uni-muenchen.de/106339/1/MPRA_paper_106339.pdf original version (application/pdf)

Related works:
Working Paper: Random encounters and information diffusion about product quality (2024)
Journal Article: Random encounters and information diffusion about product quality (2023)
Working Paper: Random Encounters and Information Diffusion about Product Quality (2021)
Working Paper: Random Encounters and Information Diffusion about Product Quality (2021)
Working Paper: Random Encounters and Information Diffusion about Product Quality (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:106339

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