Journal of Statistical Physics

, Volume 151, Issue 3–4, pp 494–522

Entanglement Between Demand and Supply in Markets with Bandwagon Goods

  • Mirta B. Gordon
  • Jean-Pierre Nadal
  • Denis Phan
  • Viktoriya Semeshenko
Article

Abstract

Whenever customers’ choices (e.g. to buy or not a given good) depend on others choices (cases coined ‘positive externalities’ or ‘bandwagon effect’ in the economic literature), the demand may be multiply valued: for a same posted price, there is either a small number of buyers, or a large one—in which case one says that the customers coordinate. This leads to a dilemma for the seller: should he sell at a high price, targeting a small number of buyers, or at low price targeting a large number of buyers? In this paper we show that the interaction between demand and supply is even more complex than expected, leading to what we call the curse of coordination: the pricing strategy for the seller which aimed at maximizing his profit corresponds to posting a price which, not only assumes that the customers will coordinate, but also lies very near the critical price value at which such high demand no more exists. This is obtained by the detailed mathematical analysis of a particular model formally related to the Random Field Ising Model and to a model introduced in social sciences by T.C. Schelling in the 70’s.

Keywords

Choice under social influence Pricing RFIM Schelling 

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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  • Mirta B. Gordon
    • 1
  • Jean-Pierre Nadal
    • 2
    • 3
  • Denis Phan
    • 4
  • Viktoriya Semeshenko
    • 5
  1. 1.Laboratoire d’Informatique de GrenobleUMR 5217 CNRS – INRIA – Grenoble INP – UPMF – UJFGrenobleFrance
  2. 2.Ecole des Hautes Etudes en Sciences Sociales, Centre d’Analyse et de Mathématique SocialesUMR 8557 CNRS – EHESSParisFrance
  3. 3.Ecole Normale Supérieure, Laboratoire de Physique StatistiqueUMR 8550 CNRS – ENS – UPMC – Université Paris DiderotParisFrance
  4. 4.Groupe d’Etude des Méthodes de l’Analyse Sociologique de la SorbonneUMR 8598 CNRS – Paris IV, Université Paris Sorbonne-Paris IVParisFrance
  5. 5.Facultad de Ciencias EconómicasUniversidad de Buenos AiresBuenos AiresArgentina

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