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

Abstract

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 customer's 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 customer's 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.

Type

Article

Author(s)

Gad Allon, Achal Bassamboo

Date Published

2011

Citations

Allon, Gad, and Achal Bassamboo. 2011. Buying from the Babbling Retailer? The Impact of Availability Information on Customer Behavior. Management Science. 57(4): 713-726.

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