Observational Learning and Demand for Search Goods

Kenneth Hendricks, Alan Sorensen and Thomas Wiseman

American Economic Journal: Microeconomics, 2012, vol. 4, issue 1, 1-31

Abstract: We develop a model of herds in which consumers observe only the aggregate purchase history, not the complete ordered history of search actions. We show that the purchasing information changes the conditions under which herds can occur for both low- and high-quality products. Inferior products are certain to be ignored; high quality products may be ignored, but complete learning may also occur. We obtain closed form solutions for the probabilities of these events and conduct comparative statics. We test the model's predictions using data from an online music market created by Salganik, Dodds, and Watts (2006). (JEL D11, D12, L82)

JEL-codes: D11 D12 L82 (search for similar items in EconPapers)
Date: 2012
Note: DOI: 10.1257/mic.4.1.1
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Citations: View citations in EconPapers (29)

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