Abstract
•Agents have uncertainty over preferences, which are correlated with others’.•A consumption externality arises from the incentive to learn from others.•A meeting technology acts as a coordination device, with endogenous value.•In duopoly, total surplus increases, but consumer surplus decreases.•The coordination device is underprovided.
This paper offers an information-based model of social interaction, and analyzes optimal investment and pricing of services that facilitate interaction in a duopoly. Agents have uncertainty over their preferences but are aware that they are correlated with others’, so there exists an incentive to communicate with others in the population. When a firm's good can be bundled with a coordination mechanism for its consumers, its value is endogenously determined due to a consumption externality. Although this mechanism increases total surplus, it is underprovided and consumer surplus decreases.