A model of flops

Authors


  • We are indebted to Ali Hortacsu (editor), David Laibson, Don Lehmann, Preston McAfee, Michael Schwarz, Joel Sobel, Eric van den Steen, Miguel Villas-Boas, and the anonymous referee for helpful remarks, Dana Sisak for outstanding assistance, and seminar participants at Harvard University for comments. The second author gratefully acknowledges the financial assistance of the National Science Foundation.

Abstract

A firm surveys a large number of consumers, some of whom sincerely report their tastes and others of whom report strategically. It makes product decisions using the sample mean of survey responses. When firms and consumers agree on the fraction of sincere consumers, information loss is severe, and many products are flops as they poorly match consumer tastes. When beliefs differ, however, equilibrium is in linear strategies, and information aggregates. Despite this, flops still arise. A firm, however, can solve the flops problem by limiting the effect of strategic consumers. Binary surveys offer one such solution.

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