Date of This Version
This paper offers an information-based model of social interaction, and analyzes optimal investment and pricing of services that facilitate interaction in a duopoly. Agents have uncertainty over their preferences but are aware that they are correlated with others’, so there exists an incentive to communicate with others in the population. When a firm’s good can be bundled with a coordination mechanism for its consumers, its value is endogenously determined due to a consumption externality. Although this mechanism increases total surplus, it is underprovided and consumer surplus decreases.
Working Paper Number
Hsiaw, Alice, "Learning Tastes Through Social Interaction" (2014). Economics Department Working Papers. Paper 165.
This article was published as: Hsiaw, A. (2014). Learning Tastes Through Social Interaction. Journal of Economic Behavior & Organization, 107(PA), 64-85.