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Optimal firm behavior with consumer social image concerns and asymmetric information

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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.

OriginalsprogEngelsk
TidsskriftJournal of Economic Behavior and Organization
Vol/bind167
Sider (fra-til)311-330
Antal sider20
ISSN0167-2681
DOI
StatusUdgivet - 2019

ID: 211671887