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Information Provision in a Vertically Differentiated Competitive Marketplace

Author

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  • Dmitri Kuksov

    () (Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130)

  • Yuanfang Lin

    () (School of Business, University of Alberta, Edmonton, Alberta T6G 2R6, Canada)

Abstract

This 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.

Suggested Citation

  • Dmitri Kuksov & Yuanfang Lin, 2010. "Information Provision in a Vertically Differentiated Competitive Marketplace," Marketing Science, INFORMS, vol. 29(1), pages 122-138, 01-02.
  • Handle: RePEc:inm:ormksc:v:29:y:2010:i:1:p:122-138
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    File URL: http://dx.doi.org/10.1287/mksc.1090.0486
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:joinma:v:38:y:2017:i:c:p:29-43 is not listed on IDEAS
    2. Desmet, Pierre, 2014. "How retailer money-back guarantees influence consumer preferences for retailer versus national brands," Journal of Business Research, Elsevier, vol. 67(9), pages 1971-1978.
    3. Roma Paolo & Perrone Giovanni, 2010. "Generic Advertising, Brand Advertising and Price Competition: An Analysis of Free-Riding Effects and Coordination Mechanisms," Review of Marketing Science, De Gruyter, vol. 8(1), pages 1-29, October.
    4. Liang Guo & Yue Wu, 2016. "Consumer deliberation and quality signaling," Quantitative Marketing and Economics (QME), Springer, vol. 14(3), pages 233-269, September.
    5. Yuanfang Lin & Amit Pazgal, 2016. "Hide Supremacy or Admit Inferiority—Market Entry Strategies in Response to Consumer Informational Needs," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 3(2), pages 94-103, June.
    6. Bing Jing, 2011. "Seller honesty and product line pricing," Quantitative Marketing and Economics (QME), Springer, vol. 9(4), pages 403-427, December.
    7. Dmitri Kuksov & Ying Xie, 2010. "Pricing, Frills, and Customer Ratings," Marketing Science, INFORMS, vol. 29(5), pages 925-943, 09-10.
    8. repec:eee:ijrema:v:33:y:2016:i:4:p:881-895 is not listed on IDEAS
    9. 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).
    10. Liang Guo & Juanjuan Zhang, 2012. "Consumer Deliberation and Product Line Design," Marketing Science, INFORMS, vol. 31(6), pages 995-1007, November.
    11. Jeffrey D. Shulman & Anne T. Coughlan & R. Canan Savaskan, 2011. "Managing Consumer Returns in a Competitive Environment," Management Science, INFORMS, vol. 57(2), pages 347-362, February.
    12. Inderst, Roman & Tirosh, Gilad, 2015. "Refunds and returns in a vertically differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 38(C), pages 44-51.
    13. repec:eee:jouret:v:93:y:2017:i:3:p:382-399 is not listed on IDEAS
    14. Zheyin Gu & Giri Tayi, 2015. "Consumer mending and online retailer fit-uncertainty mitigating strategies," Quantitative Marketing and Economics (QME), Springer, vol. 13(3), pages 251-282, September.
    15. Ganesh Iyer & Dmitri Kuksov, 2012. "Competition in Consumer Shopping Experience," Marketing Science, INFORMS, vol. 31(6), pages 913-933, November.

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