Entanglement between Demand and Supply in Markets with Bandwagon Goods

Mirta B. Gordon (mirta.gordon@imag.fr), Jean-Pierre Nadal, Denis Phan (info@denisphan.fr) and Viktoriya Semeshenko
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Mirta B. Gordon: AMA - Analyse de données, Modélisation et Apprentissage automatique [Grenoble] - LIG - Laboratoire d'Informatique de Grenoble - UPMF - Université Pierre Mendès France - Grenoble 2 - UJF - Université Joseph Fourier - Grenoble 1 - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INPG - Institut National Polytechnique de Grenoble - CNRS - Centre National de la Recherche Scientifique
Viktoriya Semeshenko: LIG - Laboratoire d'Informatique de Grenoble - UPMF - Université Pierre Mendès France - Grenoble 2 - UJF - Université Joseph Fourier - Grenoble 1 - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INPG - Institut National Polytechnique de Grenoble - CNRS - Centre National de la Recherche Scientifique, Facultad de Ciencias Económicas [Buenos Aires] - UBA - Universidad de Buenos Aires [Buenos Aires]

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Abstract: Whenever customers' choices (e.g. to buy or not a given good) depend on others choices (cases coined 'positive externalities' or 'bandwagon effect' in the economic literature), the demand may be multiply valued: for a same posted price, there is either a small number of buyers, or a large one -- in which case one says that the customers coordinate. This leads to a dilemma for the seller: should he sell at a high price, targeting a small number of buyers, or at low price targeting a large number of buyers? In this paper we show that the interaction between demand and supply is even more complex than expected, leading to what we call the curse of coordination: the pricing strategy for the seller which aimed at maximizing his profit corresponds to posting a price which, not only assumes that the customers will coordinate, but also lies very near the critical price value at which such high demand no more exists. This is obtained by the detailed mathematical analysis of a particular model formally related to the Random Field Ising Model and to a model introduced in social sciences by T C Schelling in the 70's.

Date: 2013
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Citations: View citations in EconPapers (4)

Published in Journal of Statistical Physics, 2013, 151, pp.494-522. ⟨10.1007/s10955-012-0660-1⟩

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Working Paper: Entanglement between Demand and Supply in Markets with Bandwagon Goods (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00909774

DOI: 10.1007/s10955-012-0660-1

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