engleski

THREE ESSAYS ON CONSUMER COMMUNICATION AND INFORMATION ASYMMETRY

The aim of this dissertation is to contribute to the understanding of the impact of the consumer communication on the market with information asymmetry. We focus in particular on the market for experience good with the vertical differentiation. The dissertation consists of three chapters. In Chapter 1 we develop a monopoly model close to Akerlof (1970) where we add consumer groups. Consumers do not have information about the product quality, but they do know its expected quality. They share their experience about the product with the other consumers of the group. This information flow affects buying decisions and consequently producer profits. We apply the Bayesian game theory to determine the set of equilibrium prices. We study the effect of information exchange within a consumer group on price and quality. Firstly, we find that a presence of consumer group enables signalling of quality through price, resulting in a partial or complete resolution of the adverse selection problem. It is important to emphasise that the resolution of the adverse selection problem does not come directly from the fact that consumers are informed about the product quality, but from a transformation of the producer payoffs due to the information sharing. Secondly, although consumers benefit from having an additional member in the group because of information sharing, we find that the optimum group size is finite. Thirdly, if the consumers share the costs of experimentation with the other members of the group, then the positive consumer surplus disappears, the maximum equilibrium price increases even further, and this expands the set of parameter values for which the adverse selection problem is resolved. Finally, a government can resolve the adverse selection problem by introducing minimum quality standards. In Chapter 1 we find that the communication between the consumers in monopoly enables signalling of the low-quality producer types. In the similar frameworks signalling disappears in oligopoly due to the price (Bertrand) competition. However, Janssen and Roy (2010) develop a Bayesian model and find that high-quality producers may signal their quality in oligopoly. The aim of Chapter 2 is to develop a Bayesian model which combines consumer communication and oligopoly, and check if signalling still occurs. Unlike Janssen and Roy (2010) who find signalling of the high-quality producers, by using a similar oligopoly framework we find that the low-quality producers signal their quality by setting a low price. However, as in Janssen and Roy (2010) if the competition is strong then the signalling disappears. We study a unique signalling equilibrium in oligopoly which satisfies the D1 criterion. We find that despite the fact that the competition decreases the expected social surplus, it increases the expected consumer surplus, so that the loss due to the competition is completely borne by producers. However, if the consumer group size is endogenous, then the competition my increase the expected profit. There is a multiplicity of pooling equilibria in oligopoly, where the consumer group size and the competition increase the maximum possible price, while the product variability decreases it. In Chapter 3 we apply evolutionary game theory with replicator dynamics to study the interrelation between the consumer communication on the one hand, and the producer quality choice and its disclosure to the consumers on the other. There is an information asymmetry because the consumers usually do not observe the exact quality before the purchase, but they know the expected quality. Heterogeneous producers do not interact directly, but they affect the payoffs of each other through the market price. We find an interior evolutionary unstable fraction of the high-quality producers, which divides the basins of attraction of two exterior evolutionary stable states, one with high-quality producers only, and the other with low-quality producers only. Larger consumer communication increases the fraction of the initial states which converge to the high-quality equilibrium. An increase in the fraction of the dishonest producers has the opposite effect. A population where both honest and dishonest producers co-exist is evolutionary stable, while homogeneous populations, with exclusively honest or dishonest producers are unstable. The reason is that an increase in the fraction of dishonest producers decreases ’the reputation’, and consequently the price, of the high-quality good, which decreases the payoff of the dishonest producer. However, consumer communication and the increase in the low quality may decrease, while an increase in the high quality and in the share of the high-quality producers increases the evolutionary stable fraction of the dishonest producers.

asymmetric information; communication among consumers; signalling games; adverse selection

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