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Buying from the Babbling Retailer? The Impact of Availability Information on Customer Behavior

  • Gad Allon


    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

  • Achal Bassamboo


    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

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    Provision of real-time information by a firm to its customers has become prevalent in recent years in both the service and retail sectors. In this paper, we study a retail operations model where customers are strategic in both their actions and in the way they interpret information, whereas the retailer is strategic in the way it provides information. This paper focuses on the ability (or the lack thereof) to communicate unverifiable information and influence customers' actions. We develop a game-theoretic framework to study this type of communication and discuss the equilibrium language emerging between the retailer and its customers. We show that for a single retailer and homogeneous customer population setting, the equilibrium language that emerges carries no information. In this sense, a single retailer providing information on its own cannot create any credibility with the customers. We study how the results are impacted due to the heterogeneity of the customers. We provide conditions under which the firm may be able to influence the customer behavior. In particular, we show that the customers' willingness to pay and willingness to wait cannot be ranked in an opposite manner. However, even when the firm can influence each customer class separately, the effective demand is not impacted. This paper was accepted by Yossi Aviv, operations management.

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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 57 (2011)
    Issue (Month): 4 (April)
    Pages: 713-726

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    Handle: RePEc:inm:ormnsc:v:57:y:2011:i:4:p:713-726
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    1. Robert Gibbons & Joseph Farrell, 1988. "Cheap Talk Can Matter in Bargaining," Working papers 482, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Yossi Aviv & Amit Pazgal, 2008. "Optimal Pricing of Seasonal Products in the Presence of Forward-Looking Consumers," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 339-359, December.
    3. Qian Liu & Garrett J. van Ryzin, 2008. "Strategic Capacity Rationing to Induce Early Purchases," Management Science, INFORMS, vol. 54(6), pages 1115-1131, June.
    4. Dana, James D, Jr, 2001. "Competition in Price and Availability When Availability is Unobservable," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 497-513, Autumn.
    5. Kartik, Navin, 2007. "A note on cheap talk and burned money," Journal of Economic Theory, Elsevier, vol. 136(1), pages 749-758, September.
    6. Xuanming Su & Fuqiang Zhang, 2008. "Strategic Customer Behavior, Commitment, and Supply Chain Performance," Management Science, INFORMS, vol. 54(10), pages 1759-1773, October.
    7. GĂ©rard P. Cachon & Robert Swinney, 2009. "Purchasing, Pricing, and Quick Response in the Presence of Strategic Consumers," Management Science, INFORMS, vol. 55(3), pages 497-511, March.
    8. Steven A. Matthews, 1989. "Veto Threats: Rhetoric in a Bargaining Game," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 347-369.
    9. Xuanming Su & Fuqiang Zhang, 2009. "On the Value of Commitment and Availability Guarantees When Selling to Strategic Consumers," Management Science, INFORMS, vol. 55(5), pages 713-726, May.
    10. Rui Yin & Yossi Aviv & Amit Pazgal & Christopher S. Tang, 2009. "Optimal Markdown Pricing: Implications of Inventory Display Formats in the Presence of Strategic Customers," Management Science, INFORMS, vol. 55(8), pages 1391-1408, August.
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