Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/233087 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 002.2021
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
Abstract: 
This paper explores how social interactions among consumers shape markets. In a two-country model, consumers meet and exchange information about the quality of the goods. As information spreads, the demands evolve, affecting the prices and quantities manufactured by profit-maximizing firms. We show that market prices with informational frictions reach the duopoly price with full information, at the limit. However, this convergence can take two different paths depending on the size asymmetry between countries. In particular, when countries are of very different sizes, the single market does not immediately turn into a duopoly and monopoly prices may persist for several periods. Hence, the price-reducing trade effects may take longer to appear. In view of an intense globalization process, understanding how social meetings affect market outcomes is critical for understanding the performance of international economic integration.
Subjects: 
Consumer Encounters
Information Diffusion
Country Size
Product Quality
JEL: 
D42
D43
D83
F15
L13
Document Type: 
Working Paper

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