Herding Behaviour and the Size of Customer Base as a Commitment to Quality

Posted: 15 Jan 2001

See all articles by Xeni Dassiou

Xeni Dassiou

City University London - Department of Economics

Chong Ju Choi

Australian National University (ANU) - National Graduate School of Management

Stephen Gettings

University of Cambridge - Queens' College

Abstract

This paper refers to herding behaviour as developed in Bikhchandani et al. (1992), Bannerjee (1992) and Choi and Scarpa (1994). We examine the behaviour of a potential customer who does not know how many of her predecessors decided not to purchase the product. We show that, ceteris paribus, a smaller (larger) customer base increases the likelihood of a positive (negative) cascade. Hence, a firm can signal its commitment to high quality (Schelling 1960) by choosing to develop a customer base that relies upon the customer?s "private" information rather than one that relies on an informational cascade.

Suggested Citation

Dassiou, Xeni and Choi, Chong Ju Russell and Gettings, Stephen, Herding Behaviour and the Size of Customer Base as a Commitment to Quality. Available at SSRN: https://ssrn.com/abstract=247421

Xeni Dassiou (Contact Author)

City University London - Department of Economics ( email )

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Chong Ju Russell Choi

Australian National University (ANU) - National Graduate School of Management ( email )

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Stephen Gettings

University of Cambridge - Queens' College

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