Consumer inertia fosters product quality

We analyze a market wherein consumers display inertia while having limited information about a product. We assume that consumers rely on anecdotal information during product assessment. Furthermore, they tend to overvalue and stick to their previous choice as long as it is satisfactory. We investigate the impact of inertia on market equilibrium. Although inertia raises firms’ monopoly power, it also creates incentives for quality increase and may enhance consumer and market welfare.