TY - JOUR
T1 - Optimal firm behavior with consumer social image concerns and asymmetric information
AU - Sebald, Alexander
AU - Vikander, Nick
PY - 2019/11
Y1 - 2019/11
N2 - This paper explores how consumers’ belief-dependent social image concerns can affect firm strategic choices in a product market setting. We consider a theoretical framework with incomplete information where a profit-maximizing monopolist sets a price for its product, taking into account that consumers care about the belief that others hold about the product’s popularity. Throughout our analysis, we highlight the close connection between our dynamic psychological game and the literature on network effects. We show in particular that belief-dependent social image concerns generate equilibrium price distortions that do not arise in a network effect setting, and we explore the implications for consumer demand and firm profits.
AB - This paper explores how consumers’ belief-dependent social image concerns can affect firm strategic choices in a product market setting. We consider a theoretical framework with incomplete information where a profit-maximizing monopolist sets a price for its product, taking into account that consumers care about the belief that others hold about the product’s popularity. Throughout our analysis, we highlight the close connection between our dynamic psychological game and the literature on network effects. We show in particular that belief-dependent social image concerns generate equilibrium price distortions that do not arise in a network effect setting, and we explore the implications for consumer demand and firm profits.
KW - Consumer search
KW - Optimal firm behavior
KW - Social image
UR - http://www.scopus.com/inward/record.url?scp=85059198353&partnerID=8YFLogxK
U2 - 10.1016/j.jebo.2018.12.004
DO - 10.1016/j.jebo.2018.12.004
M3 - Journal article
AN - SCOPUS:85059198353
SN - 0167-2681
JO - Journal of Economic Behavior & Organization
JF - Journal of Economic Behavior & Organization
ER -