Issue: Summer 1996
Pages: pp. 221-239
Authors: Ramon Caminal and Xavier Vives
Title: Why Market Shares Matter: An Information-Based Theory
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.
Market Structure, Firm Strategy, and Market Performance: Oligopoly and Other Imperfect Markets
Monopolistic Competition
Contestable Markets (L130
Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection (D430)
Market Structure: Industrial Organization and Corporate Strategy (6110