Why Market Shares Matter: An Information-Based Theory

RAND J. OF ECONOMICS, Vol. 27 No. 2

Posted: 5 Jul 1998

See all articles by Ramon Caminal

Ramon Caminal

Universitat Autonoma de Barcelona - Institut d'Analisi Economica, CSIC; Centre for Economic Policy Research (CEPR)

Xavier Vives

University of Navarra - IESE Business School; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Abstract

Consider a duopoly market in which consumers have heterogeneous information about the quality differential q of the two goods. When firms are ignorant about q, consumers rationally believe that a firm with high market shares is likely to produce a high-quality good. As a result, firms try to signal-jam the inferences of consumers and compete for market shares beyond the level explained by short-run profit maximization. When firms know q, multiple equilibria may exist, but there is always one equilibrium in which market shares signal quality, and then the market tends to be more competitive.

JEL Classification: G14

Suggested Citation

Caminal, Ramon and Vives, Xavier, Why Market Shares Matter: An Information-Based Theory. RAND J. OF ECONOMICS, Vol. 27 No. 2, Available at SSRN: https://ssrn.com/abstract=7342

Ramon Caminal

Universitat Autonoma de Barcelona - Institut d'Analisi Economica, CSIC ( email )

08193 Bellaterra
Spain
+34 93 580 6612 (Phone)
+34 93 580 1452 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Xavier Vives (Contact Author)

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

HOME PAGE: http://wwwapp.iese.edu/faculty/facultyDetail.asp?lang=en&prof=xv

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
817
PlumX Metrics