Random Encounters and Information Diffusion about Product Quality

31 Pages Posted: 10 Mar 2021

See all articles by Jean J. Gabszewicz

Jean J. Gabszewicz

affiliation not provided to SSRN

Marco A. Marini

University of Rome La Sapienza; CREI, University Rome III

Skerdilajda Zanaj

Universite du Luxembourg

Date Written: March 10, 2021

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 profit-maximizing firms. 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 Diffusion, Country Size, Product Quality

JEL Classification: D42, D43, D83, F15, L13

Suggested Citation

Gabszewicz, Jean J. and Marini, Marco A. and Zanaj, Skerdilajda, Random Encounters and Information Diffusion about Product Quality (March 10, 2021). FEEM Working Paper No. 2.2021, Available at SSRN: https://ssrn.com/abstract=3801563 or http://dx.doi.org/10.2139/ssrn.3801563

Jean J. Gabszewicz

affiliation not provided to SSRN

Marco A. Marini (Contact Author)

University of Rome La Sapienza ( email )

Piazzale Aldo Moro, 5
Rome, 00181
Italy
+39 06 49910843 (Phone)

HOME PAGE: http://https://sites.google.com/a/uniroma1.it/marcomarini

CREI, University Rome III ( email )

Via Ostiense, 161
Rome, 00154
Italy

HOME PAGE: http://host.uniroma3.it/centri/crei/

Skerdilajda Zanaj

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

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