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Heterogeneity in Conformism, Firm Selection, and Home Bias

Author

Listed:
  • Sergey Kichko

    () ("National Research University Higher School of Economics, Russian Federation ")

  • Pierre M. Picard

    () (CREA, Université du Luxembourg)

Abstract

This paper discusses the impact of conformism on product quality, firm selection, and trade patterns. It shows that when consumers have a higher degree of conformism and/or their distribution of conformism becomes more concentrated, the equilibrium average demand falls while product quality rises in a closed economy. In an international trade context, this strengthens the home consumption bias when consumers conform to the behavior of local people. The home bias is mitigated under globalization where individuals tend to conform to people worldwide. The paper also discusses the conditions under which conformism and conspicuousness are reconciled.

Suggested Citation

  • Sergey Kichko & Pierre M. Picard, 2018. "Heterogeneity in Conformism, Firm Selection, and Home Bias," CREA Discussion Paper Series 18-09, Center for Research in Economic Analysis, University of Luxembourg.
    • Handle: RePEc:luc:wpaper:18-09
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    References listed on IDEAS

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    More about this item

    Keywords

    heterogeneity in conformism; product quality; firmheterogeneity; home bias;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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