Why Market Shares Matter: An Information-Based Theory

Ramon Caminal and Xavier Vives

RAND Journal of Economics, 1996, vol. 27, issue 2, 221-239

Abstract: Consider a duopoly market in which consumers have heterogeneous information about the quality differential q of the two goods. When firms are ignorant about q, consumers rationally believe that a firm with high market shares is likely to produce a high-quality good. As a result, firms try to signal-jam the inferences of consumers and compete for market shares beyond the level explained by short-run profit maximization. When firms know q, multiple equilibria may exist, but there is always one equilibrium in which market shares signal quality, and then the market tends to be more competitive.

Date: 1996
References: Add references at CitEc
Citations: View citations in EconPapers (76)

Downloads: (external link)
http://links.jstor.org/sici?sici=0741-6261%2819962 ... O%3B2-Q&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Working Paper: Why Do Market Shares Matter?: An Information-Based Theory (1992)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rje:randje:v:27:y:1996:i:summer:p:221-239

Ordering information: This journal article can be ordered from
https://editorialexp ... i-bin/rje_online.cgi

Access Statistics for this article

More articles in RAND Journal of Economics from The RAND Corporation
Bibliographic data for series maintained by ().