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18.03. Micro Theory Seminar: Alexei Parakhonyak

Micro Theory Seminar with Alexei Parakhonyak (Oxford University)

Event details
    When Mar 18, 2019
    from 12:00 to 13:00
    Where Faculty Room
    Contact Name Stephan Lauermann
    Contact Email
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     Information design through scarcity and social learning


     We show that a firm may benefit from strategically creating scarcity for its product, in order to trigger herding behavior from consumers in situations where such behavior is otherwise unlikely. We consider a setting with social learning, where consumers observe sales from previous cohorts and update beliefs about product quality before making their purchase. Imposing a capacity constraint directly limits sales but also makes information coarser for consumers, who react favorably to a sell-out because they only infer that demand must exceed capacity. Neither large cohorts nor unbounded private signals guarantee efficient learning, because the firm acts strategically to influence the consumers’ learning environment. Our results show that capacity constraints can serve as a practical tool for information design: if private signals are not too precise and capacity can be changed over time, then in large markets the firm’s optimal choice of capacity delivers the same expected sales as the Bayesian persuasion solution.

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