Emergence of product differentiation from consumer heterogeneity and asymmetric information

TL;DR

This paper presents a probabilistic model of consumer product choice that incorporates quality assessment, information asymmetry, and product placement, providing a comprehensive framework for understanding marketing dynamics.

Contribution

It introduces a novel probabilistic framework that models consumer choice considering heterogeneity, asymmetric information, and quality differentiation in a unified manner.

Findings

Model captures effects of information asymmetry on product choice

Framework explains emergence of product differentiation

Applicable to marketing strategies and product placement

Abstract

We introduce a fully probabilistic framework of consumer product choice based on quality assessment. It allows us to capture many aspects of marketing such as partial information asymmetry, quality differentiation, and product placement in a supermarket.