Voting with your pocketbook - a stochastic model of consumer boycotts

This paper presents a model of consumer boycotts where the discrete choices of concerned consumers are represented as a stochastic processes. Boycotts are interpreted as a form of voting where consumers are trying to shape the behavior of firms.We solve for the limiting distribution of the process and analyze its properties. We then discuss how the model relates to standard game-theoretic approaches to the same phenomenon and show that our model selects one of the many solutions of the corresponding game-theoretic treatment. The type of solution selected depends on the costs and benefits of boycotts to consumers. Specifically, boycotts will occur if and only if they are efficient for consumers. ∗Professors Diermeier and Van Mieghem are at the Department of Managerial Economics and Decision Sciences (MEDS), Kellogg School of Management, Northwestern University, Evanston, IL 60208-2009; [email protected] and [email protected] 1 This article is published in Mathematical and Computer Modelling 48 (2008) 1497-1509.