Market Share Indicates Quality

TL;DR

This paper demonstrates that, under certain assumptions, market share can reliably indicate product quality through Bayesian inference, despite complexities like herding or elitism in customer behavior.

Contribution

It shows that Bayesian inference can accurately link market share to product quality in a fixed-price model with informed customers.

Findings

Market share correlates with quality under specific assumptions.

Bayesian inference effectively estimates product quality from market share.

Customer behavior modes like herding do not invalidate the inference.

Abstract

Market share and quality, or customer satisfaction, go together. Yet inferring one from the other appears difficult. Indeed, such an inference would need detailed information about customer behavior, and might be clouded by modes of behavior such as herding (following popularity) or elitism, where customers avoid popular products. We investigate a fixed-price model where customers are informed about their history with products and about market share data. We find that it is in fact correct to make a Bayesian inference that the product with the higher market share has the better quality under few and unrestrictive assumptions on customer behavior.