Endogenous Differentiation of Consumer Preferences Under Quality Uncertainty in a SPA Network

Conference paper
Part of the Lecture Notes in Computer Science book series (LNCS, volume 10519)


We study a duopoly market on which there is uncertainty of a product quality. Consumers adaptively learn about quality of products when they buy them (direct learning) or from other consumers with whom they are interacting in a social network modelled as a SPA graph (indirect learning). We show that quality uncertainty present in such a market leads to endogenous segmentation of consumers’ preferences towards suppliers. Additionally, we show that in this setting, even if both companies have the same expected quality, the company with lower variance of quality will gain higher market share.


Quality Uncertainty Endogenous Differentiation Quality Expectations Finite State Space Model Average Positive Correlation 
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© Springer International Publishing AG 2017

Authors and Affiliations

  1. 1.Decision Support and Analysis UnitWarsaw School of EconomicsWarsawPoland
  2. 2.Department of MathematicsRyerson UniversityTorontoCanada

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