Market Share Indicates Quality

Market share and quality, or customer satisfaction, go hand in hand. Yet it is hard to find in the literature a clear formal statement to the effect that higher market share indicates higher quality. Indeed, such an inference would need detailed information about customer behavior. Moreover, even when that data is available, the validity of the inference is cast in doubt by common modes of behavior such as herding, the tendency to consume products due to their known popularity, or elitism, the opposite behavoir where customers associate mass popularity with lower quality. We investigate a model where customers are informed about their history with products and about global market share data. We find that it is in fact correct to make a Bayesian inference that the product with the higher market share has the better quality under few and rather unrestrictive assumptions on customer behavior.