Structure, Cooperation, and the Flow of Market Information

  • Frenzen J
  • Nakamoto K
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This article explores the potential impact of individual consumer decisions to transmit or withhold word-of-mouth information on the flow of information in a market. Information flow is examined in networks composed of graphs and nodes, where graphs represent channels that foster information flow and nodes represent sentient decision makers who can potentially impede or foster information flow. We assert that actors in embedded markets first judge the moral hazards imposed by the information they consider for transmission and the social context of transmission, and then moderate their decisions to transmit the information in light of these judgements. We analyze this process using a modified version of Marshall Sahlins's social exchange theory, examine the plausibility of this analysis using two laboratory experiments, and explore the consequences of this behavior at the aggregate level using a computer simulation. Our view highlights the importance of the interplay of individuals and their social context for understanding word-of-mouth processes.

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  • Jonathan Frenzen

  • Kent Nakamoto

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