Information Provision in a Vertically Differentiated Competitive Marketplace
AbstractThis paper examines the interaction of information provision, product quality, and pricing decisions by competitive firms to explore the following question: in a competitive market where consumers face uncertainty about product quality and/or their preference for quality, which firms—those that sell higher- or lower-quality products—have the higher incentive to provide what type of information? We find that while the higher-quality firm should always provide information resolving consumer uncertainty on product quality, the lower-quality firm under certain conditions will have the higher incentive to and will be the one to provide information resolving consumer uncertainty about their quality preferences. In the analysis, we trace the latter result to competition and to free-riding on the information provision. Specifically, in a monopoly market or when consumer free-riding is restricted by the costliness of store visits, the lower-quality firm would have a lower incentive to provide information resolving consumer preference uncertainty than otherwise. The model is also adapted to examine product returns as a possible strategy of information provision.
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Bibliographic InfoArticle provided by INFORMS in its journal Marketing Science.
Volume (Year): 29 (2010)
Issue (Month): 1 (01-02)
uncertainty; information; competitive strategy; service; free-riding; game theory; product returns;
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- Bing Jing, 2011. "Seller honesty and product line pricing," Quantitative Marketing and Economics, Springer, vol. 9(4), pages 403-427, December.
- Cacciolatti, Luca & Wan, Tingting, 2012. "A Study of Small Business Owners’ Personal Characteristics and the Use of Marketing Information in the Food and Drink Industry: A Resource-Based Perspective," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 3(2).
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