Incentives through Consumer Learning about Tastes

Heiner Schumacher

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avisTidsskriftartikelForskningpeer review

Abstract

We consider a long-lived firm that faces an infinite sequence of finitely-lived consumers. In each period, the firm can exert either high or low effort, which is the firm's private information. When consumers learn about the firm's talent from the outcomes of previous transactions, there exists no equilibrium in which the firm always exerts high effort. However, when consumers learn about their own tastes, such an equilibrium can exist. Consumer learning about tastes therefore is an alternative to reputational concerns that produces stable incentives. We discuss the implications of this mechanism for advertising, advertising content, and consumer education.
OriginalsprogEngelsk
TidsskriftInternational Journal of Industrial Organization
Vol/bind79
Sider (fra-til)170-177
Antal sider8
ISSN0167-7187
DOI
StatusUdgivet - 2014

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