Better-informed consumers may be treated preferentially by firms because their consumption serves as a quality signal for other customers. For normal goods this results in wealthy individuals being treated better than poor individuals. We investigate this phenomenon in an equilibrium model of social learning with heterogeneous consumers and firms that act strategically. Consumers search for high quality firms and condition their choices on observed actions of other consumers. When they observe consumers who are more likely to have identified a high-quality firm, uninformed individuals will optimally emulate those consumers. One group of consumers arise endogenously as “leaders” whose consumption behavior is emulated. Follow-on sales induce firms to give preferential treatment to these lead consumers, which reinforces their learning.
Strategic Firms and Endogenous Consumer Emulation
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In a model of social learning, the better informed (wealthier) consumers get preferential service because their consumption signals high quality to others.
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Econometrica, 2015, Vol 83 (5), 1849-1875. With K. Kim. [online appendix] We introduce cheap-talk into a market game and study if the equilibrium can replicate the constraint efficient allocation under (reserve) price posting. Go to paper
Review of Economic Studies, 2019 86(4): 1411-1447. With Michèle Belot and Paul Muller. We develop and evaluate experimentally a novel tool that redesigns the job search process by providing tailored online advice about related occupations. Go to paper
Economic Journal, 2021 131: 713-744. With Ericson, Spinnewijn &, Starc Demand for insurance can be driven by high risk aversion or high risk, and we show how to separate the two using observed market shares. Go to paper