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Random Encounters and Information Diffusion about Product Quality

Jean Gabszewicz, Marco Marini and Skerdilajda Zanaj

No 3/21, Working Papers from Sapienza University of Rome, DISS

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 profi?t-maximizing ?rms. 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 Di¤usion; Country Size; Product Quality. (search for similar items in EconPapers)
JEL-codes: D42 D43 D83 F15 L13 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

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Related works:
Journal Article: Random encounters and information diffusion about product quality (2023) Downloads
Working Paper: Random Encounters and Information Diffusion about Product Quality (2021) Downloads
Working Paper: Random Encounters and Information Diffusion about Product Quality (2021) Downloads
Working Paper: Random Encounters and Information Di§usion about Product Quality (2021) Downloads
Working Paper: Random Encounters and Information Diffusion about Markets (2017) Downloads
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