2015/12/22 by Felipe Maldonado, Maldonado, Felipe, Pascal Van Hentenryck +5 · 1 citation
Business, Management and Accounting · Decision Sciences · Social Sciences · #Consumer Market Behavior and Pricing #Experimental Behavioral Economics Studies #FOS: Computer and information sciences #Game Theory and Applications #Social and Information Networks (cs.SI)
paper · pdf · doi:10.48550/arxiv.1512.07251
openalex publication_date 2015/12/22 · openalex created_date 2022/10/02 · openalex updated_date 2026/07/28
This paper considers trial-offer markets where consumer preferences are\nmodeled by a multinomial logit with social influence and position bias. The\nsocial signal for a product is given by its current market share raised to\npower r (or equivalently the number of purchases raised to the power of r). The\npaper shows that, when r is strictly between 0 and 1, and a static position\nassignment (e.g., a quality ranking) is used, the market converges to a unique\nequilibrium where the market shares depend only on product quality, not their\ninitial appeals or the early dynamics. When r is greater than 1, the market\nbecomes unpredictable. In many cases, the market goes to a monopoly for some\nproduct: Which product becomes a monopoly depends on the initial conditions of\nthe market. These theoretical results are complemented by an agent-based\nsimulation which indicates that convergence is fast when r is between 0 and 1,\nand that the quality ranking dominates the well-known popularity ranking in\nterms of market efficiency. These results shed a new light on the role of\nsocial influence which is often blamed for unpredictability, inequalities, and\ninefficiencies in markets. In contrast, this paper shows that, with a proper\nsocial signal and position assignment for the products, the market becomes\npredictable, and inequalities and inefficiencies can be controlled\nappropriately.\n