1 On the Value of a Large Customer Base in Markets with Incomplete Consumer Information

Economic intuition suggests that if current profits depend upon past sales in markets with repeat purchasing, then firms benefit from a large customer base. This paper studies price competition in duopolistic markets with incomplete consumer information, where consumers perform active non-sequential search or word-of-mouth communication. It is shown that the above intuition is not correct. The relation between past sales and current profit is not generally monotone and can take on a surprising variety of shapes. An endogenous determination of the amount of word-of-mouth communication is introduced, and the model is extended to oligopolies with more than two firms