IDEAS home Printed from https://ideas.repec.org/a/spr/custns/v3y2016i2d10.1007_s40547-015-0061-0.html
   My bibliography  Save this article

Hide Supremacy or Admit Inferiority—Market Entry Strategies in Response to Consumer Informational Needs

Author

Listed:
  • Yuanfang Lin

    (Conestoga College)

  • Amit Pazgal

    (Rice University)

Abstract

This paper investigates information provision and pricing decisions by vertically differentiated firms sequentially entering a market where consumers face uncertainty about the quality of the new product offering as well as their own preferences or willingness to pay for quality. We find that regardless of the quality of the late entrant firm’s product, the first entrant would like to commit to and provide quality-revealing information. Surprisingly, we find that a late entrant with a superior product may choose not to inform consumers of its better quality, even if that would result in consumers perceiving its product to be of inferior quality. Instead, the high-quality late entrant will opt to educate consumers about their preference for quality. On the other hand, a late entrant offering a low-end product may wish to admit to offering an inferior product rather than allowing consumers to incorrectly assume that its product may be of higher quality. We identify the primary driving factors for these seemingly unexpected informational services decisions to be the cost of educating and helping consumers to resolve different types of uncertainties, the degree of vertical product differentiation, and the early entrant service preemption.

Suggested Citation

  • 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.
  • Handle: RePEc:spr:custns:v:3:y:2016:i:2:d:10.1007_s40547-015-0061-0
    DOI: 10.1007/s40547-015-0061-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s40547-015-0061-0
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s40547-015-0061-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Monic Sun, 2011. "Disclosing Multiple Product Attributes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(1), pages 195-224, March.
    2. Dmitri Kuksov & Yuanfang Lin, 2010. "Information Provision in a Vertically Differentiated Competitive Marketplace," Marketing Science, INFORMS, vol. 29(1), pages 122-138, 01-02.
    3. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    4. Birger Wernerfelt, 1994. "On the Function of Sales Assistance," Marketing Science, INFORMS, vol. 13(1), pages 68-82.
    5. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-327, May.
    6. Heiman, Amir & McWilliams, Bruce & Zilberman, David, 2001. "Demonstrations and money-back guarantees: market mechanisms to reduce uncertainty," Journal of Business Research, Elsevier, vol. 54(1), pages 71-84, October.
    7. Simon P. Anderson & Régis Renault, 2006. "Advertising Content," American Economic Review, American Economic Association, vol. 96(1), pages 93-113, March.
    8. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    9. Liang Guo & Ying Zhao, 2009. "Voluntary Quality Disclosure and Market Interaction," Marketing Science, INFORMS, vol. 28(3), pages 488-501, 05-06.
    10. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    11. Zheyin (Jane) Gu & Ying Xie, 2013. "Facilitating Fit Revelation in the Competitive Market," Management Science, INFORMS, vol. 59(5), pages 1196-1212, May.
    12. repec:dau:papers:123456789/12478 is not listed on IDEAS
    13. George E. Newman & Margarita Gorlin & Ravi Dhar, 2014. "When Going Green Backfires: How Firm Intentions Shape the Evaluation of Socially Beneficial Product Enhancements," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 41(3), pages 823-839.
    14. Liang Guo, 2009. "Quality Disclosure Formats in a Distribution Channel," Management Science, INFORMS, vol. 55(9), pages 1513-1526, September.
    15. Dina Mayzlin & Jiwoong Shin, 2011. "Uninformative Advertising as an Invitation to Search," Marketing Science, INFORMS, vol. 30(4), pages 666-685, July.
    16. Moreau, C Page & Markman, Arthur B & Lehmann, Donald R, 2001. ""What Is It?" Categorization Flexibility and Consumers' Responses to Really New Products," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 27(4), pages 489-498, March.
    17. Zheyin (Jane) Gu & Yunchuan Liu, 2013. "Consumer Fit Search, Retailer Shelf Layout, and Channel Interaction," Marketing Science, INFORMS, vol. 32(4), pages 652-668, July.
    18. Yubo Chen & Jinhong Xie, 2008. "Online Consumer Review: Word-of-Mouth as a New Element of Marketing Communication Mix," Management Science, INFORMS, vol. 54(3), pages 477-491, March.
    19. Simon P. Anderson & Régis Renault, 2009. "Comparative advertising: disclosing horizontal match information," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 558-581, September.
    20. Ratchford, Brian T., 2009. "Consumer Search Behavior and Its Effect on Markets," Foundations and Trends(R) in Marketing, now publishers, vol. 3(1), pages 1-74, March.
    21. Gregory S. Carpenter & Kent Nakamoto, 1990. "Competitive Strategies for Late Entry into a Market with a Dominant Brand," Management Science, INFORMS, vol. 36(10), pages 1268-1278, October.
    22. Praveen K. Kopalle & Donald R. Lehmann, 2006. "Setting Quality Expectations When Entering a Market: What Should the Promise Be?," Marketing Science, INFORMS, vol. 25(1), pages 8-24, 01-02.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Fa & Chen, Jing & Yang, Hui & Yu, Bo, 2022. "Supplier selection with information disclosure in the presence of uninformed consumers," International Journal of Production Economics, Elsevier, vol. 243(C).
    2. Sun, Fei & Chen, Jing & Yang, Hui & Chen, Bintong & Wan, Zeying, 2023. "Production outsourcing decision in the presence of consumer’s preference uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 175(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Monic Sun & Rajeev K. Tyagi, 2020. "Product Fit Uncertainty and Information Provision in a Distribution Channel," Production and Operations Management, Production and Operations Management Society, vol. 29(10), pages 2381-2402, October.
    2. Liang Guo, 2020. "Upstream Exploitation and Strategic Disclosure," Marketing Science, INFORMS, vol. 39(5), pages 923-938, September.
    3. Zhang, Tao & Li, Gang & Lai, Kin Keung & Leung, John W.K., 2018. "Information disclosure strategies for the intermediary and competitive sellers," European Journal of Operational Research, Elsevier, vol. 271(3), pages 1156-1173.
    4. Liang Guo, 2021. "Partial Unraveling and Strategic Contract Timing," Management Science, INFORMS, vol. 67(12), pages 7719-7736, December.
    5. Ganesh Iyer & Shubhranshu Singh, 2022. "Persuasion Contest: Disclosing Own and Rival Information," Marketing Science, INFORMS, vol. 41(4), pages 682-709, July.
    6. Lin Hao & Yong Tan, 2019. "Who Wants Consumers to Be Informed? Facilitating Information Disclosure in a Distribution Channel," Service Science, INFORMS, vol. 30(1), pages 34-49, March.
    7. Zheyin (Jane) Gu & Ying Xie, 2013. "Facilitating Fit Revelation in the Competitive Market," Management Science, INFORMS, vol. 59(5), pages 1196-1212, May.
    8. Archishman Chakraborty & Rick Harbaugh, 2014. "Persuasive Puffery," Marketing Science, INFORMS, vol. 33(3), pages 382-400, May.
      • Archishman Chakraborty & Rick Harbaugh, 2012. "Persuasive Puffery," Working Papers 2012-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    9. Bing Jing, 2016. "Lowering Customer Evaluation Costs, Product Differentiation, and Price Competition," Marketing Science, INFORMS, vol. 35(1), pages 113-127, January.
    10. Hong, Xianpei & Zhou, Menghuan & Gong, Yeming, 2021. "Dilemma of quality information disclosure in technology licensing," European Journal of Operational Research, Elsevier, vol. 294(2), pages 543-557.
    11. Yuan, Mao & Pun, Hubert & Guan, Xu, 2022. "Information disclosure in a supply chain with copycat threat," European Journal of Operational Research, Elsevier, vol. 302(3), pages 1018-1030.
    12. Zhao, Ming & Dong, Ciwei & Cheng, T.C.E., 2018. "Quality disclosure strategies for small business enterprises in a competitive marketplace," European Journal of Operational Research, Elsevier, vol. 270(1), pages 218-229.
    13. Wu, Lingli & Deng, Shiming & Jiang, Xuan, 2018. "Sampling and pricing strategy under competition," Omega, Elsevier, vol. 80(C), pages 192-208.
    14. Frederick Dongchuhl Oh & Junghum Park, 2019. "Potential competition and quality disclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(4), pages 614-630, November.
    15. Levent Celik, 2014. "Information Unraveling Revisited: Disclosure of Horizontal Attributes," Journal of Industrial Economics, Wiley Blackwell, vol. 62(1), pages 113-136, March.
    16. Sun, Fei & Chen, Jing & Yang, Hui & Chen, Bintong & Wan, Zeying, 2023. "Production outsourcing decision in the presence of consumer’s preference uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 175(C).
    17. Upender Subramanian & Ram C. Rao, 2016. "Leveraging Experienced Consumers to Attract New Consumers: An Equilibrium Analysis of Displaying Deal Sales by Daily Deal Websites," Management Science, INFORMS, vol. 62(12), pages 3555-3575, December.
    18. Xu Guan & Yulan Wang & Zelong Yi & Ying‐Ju Chen, 2020. "Inducing Consumer Online Reviews Via Disclosure," Production and Operations Management, Production and Operations Management Society, vol. 29(8), pages 1956-1971, August.
    19. Li Yimeng & Franco Mariuzzo & Nikolaos Korfiatis & Yu Xiong, 2017. "Information Strategies of new Product Introduction in Vertical Markets," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2017-03, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    20. Celik, Levent, 2016. "Competitive provision of tune-ins under common private information," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 113-122.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:custns:v:3:y:2016:i:2:d:10.1007_s40547-015-0061-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.