Managing consumer deliberation with demand investment under platform retailing

This paper studies a manufacturer’s strategic incentives to manage consumer deliberation under platform retailing wherein either the manufacturer or the platform can engage in investment activities to enhance the market demand. Consumers, who are initially uncertain about the quality of the product on the platform, may incur deliberation costs to learn their true valuations. We establish a game-theoretic model to investigate the interplay between channel pricing and consumer deliberation with firm investments and its impact on channel equilibrium, and some nontrivial ramifications are derived. First, we find that consumers are less likely to engage in deliberation in the presence of investment, indicating the depression effect of demand-enhancing investment on consumers’ deliberation behaviors. Second, in the reselling format, the equilibrium channel strategy and the incentive provision for consumer deliberation depend primarily on the investment mode, investment efficiency, and deliberation cost. The manufacturer consistently provides an incentive to induce (inhibit) deliberation for a low (moderate) investment efficiency, independent of the deliberation cost. Third, firms have stronger incentives to induce deliberation by setting a higher price under manufacturer investment than under platform investment. And channel members’ investments do not necessarily benefit themselves, while the platform investment mode is always beneficial to consumer surplus. Finally, in the agency selling format, the highest thought-provoking price becomes suboptimal, and the platform benefits more from manufacturer investment than from platform investment when the commission rate is not excessively high. We further compare the two selling formats and find that the manufacturer prefers the reselling format if both the investment efficiency and the deliberation cost are high.