Product pricing and quality decisions with consumer social learning——Impact of reference effects and consumer heterogeneity
The behavior in which consumers update their quality valuations on products by learning from online reviews of their peers is referred to as social learning.The impact of social learning on consumers'purchasing decisions as well as on firms'product quality and pricing decisions has been well recognized.However,the current study seldom takes into account the reference effect and loss aversion which often occur in the process of consumer learning and reviewing.Considering the dynamic nature of consumers'belief in quality in the learning(before purchasing)and reviewing(after purchasing)processes,their reference points and the resulting effects vary as time goes by.This paper considers two reference effects in particular:the learning effect and the experience effect.The former indicates that consumers are loss-averse if the ex-ante quality valuation prior to learning is lower than the learning outcome,and the latter refers to the loss aversion effect on the ex-post quality valuation after experiencing the product by taking the learning outcome as—212—the reference point.It is therefore important to differentiate these two reference effects and look into their impacts on consumers'decisions,to provide insights for making effective product strategies.Consider a monopoly firm facing loss-averse consumers with social learning behavior who review and post comments on an online platform.Consumers arrive at the market sequentially.The learning effect occurs when consumers learn from online reviews and thus influence their purchasing decision,while the experience effect happens after purchasing.Consumers are heterogeneous in their willingness to pay and their belief in quality.The firm needs to decide on quality and pricing decisions before the selling season.To address the aforementioned sequential and complex process of learning,purchasing,and reviewing,we employ a multi-method approach combining mathematical modeling and agent simulation to conduct the analyses.We first construct a mathematical model to describe the decision process and the updating belief in quality with consumers'social learning behavior and the resulting reference effect.Then we establish a multi-agent model simulating the behavior of the consumers,the firm,and the platform.The multi-agent simulation approach is widely used to simulate complex social systems,which is convenient to depict the individual consumer's social learning and sequential decision-making behavior.After that,we investigate the impact of consumer heterogeneity in quality belief prior to purchasing and quality experience after purchasing.A further comparison of a differentiated pricing policy and a uniform pricing policy is conducted,to reveal the impact of the platform's information policy on the firm's pricing and quality decisions as well as the profits.Extensive simulations and robustness checks have been carried out to conduct the research.Our findings can be summarized as follows.First,consumers'social learning behavior and reference effects have a significant impact on the firm's pricing and quality decisions and profit.Social learning increases the average rating of the review comments,and the experience effect helps to reduce the variance of them.The learning effect causes a lower price but a higher quality and thus dampens the firm,whilst the experience effect results in a higher price and benefits the firm.Overall,the firm gets advantages from social learning but gets losses from the reference effects where both effects co-exist.Second,the firm's optimal policy differs significantly,relying on the consumer uncertainty level in their ex-ante quality belief.When the uncertainty is relatively low,the firm opts for the optimal product decision,similar to the ones without social learning.When the uncertainty is high,the firm chooses a product with inferior quality accompanied by lower prices.Third,the firm benefits from the heterogeneity in consumers'ex-ante quality belief but hurts from the heterogeneity in their ex-post quality experience,the effect of which relates to the ratio of high-value consumers in the market.Fourth,the differentiated pricing policy is superior to the uniform pricing policy,although the quality decision is the same under both scenarios.Finally,sharing information about consumers'willingness to pay may reduce the firm's opportunity loss,while the impacts of classifying consumers'reviewing comments on the firm could be negligible.Thus,various managerial implications are generated.
Social learningReference effectQualityDifferentiated pricingMulti-agent based modeling and simulation
万方数据
维普
