Erdem Consumer Learning about Quality and its Role in Consumer Choice This research program revolves around three different but related projects. The common theme is the analysis of consumer choice behavior in environments in which consumers are uncertain about product quality. Understanding the impact of consumer uncertainty about product quality on consumer behavior has important consumer welfare, as well as managerial implications. The first project examines the consumer choice process for high-tech durable goods, which are characterized by two or more technological alternatives (e.g. IBM/Compatible vs. Apple or cable service vs. satellite dish), a rapid pace of technological change and consumer learning about product attributes. We develop and estimate a model of consumer behavior in such an environment on data collected via surveys of consumers in the market for computers. We model the process of consumers' active learning about alternatives. In our model, consumers have several methods of acquiring information and they have uncertainty about the accuracy of the various information sources. They decide in each period whether to obtain additional information, whether to buy at that time and if so, what to buy. This project will shed light on several issues including the impact of the availability, cost and accuracy of different information sources on consumer welfare, as well as the impact of marketing strategies on consumer choice in dynamic high-tech markets. For example, our results could be used to help firms allocate their resources for conveying information to consumers more efficiently. The second and third projects examine consumer choice in frequently purchased product categories where consumers are uncertain about product quality and learn about products through both consumption experience and advertising. In our model, both consumption experience and advertising provide consumers with direct but noisy information about product attributes. Within this context, the first project studies the impact of advertising on consumer price sensitivities and the implications of this for both consumer welfare and firm strategy. The third project studies markets in which consumers may use prices and advertising frequency as signals of product quality. In this project, we seek to answer questions about the impact of pricing and advertising strategy on firm's brand equity and consumer welfare in the long-run (e.g., if advertising conveys information, is it the advertising copy or the volume of advertising that conveys information to consumers about product quality).
