Pricing and investing in co-creation with customers for a duopoly

Rui Yang, Wansheng Tang, Mengdi Dou and Jianxiong Zhang

International Journal of Production Economics, 2021, vol. 237, issue C

Abstract: Customers participating in the firm's product co-creation can discern the precise valuation about the product before actual consumption and get a potential benefit which encourages them to buy the products they have co-created. This observation prompts firms to lower participation costs via customer co-creation investment (CCI) and attract customers to participate in their co-creation; meanwhile, provides the opportunity for them to practice discriminatory pricing based on customer's participation behavior. In an experience good duopoly, we investigate the firms' co-creation strategy, which interacts with their CCIs and pricing, via a game-theoretical approach. We find that co-creation can lead to less profits, especially if firms have a higher ability to change investment into lower customer's participation cost, which is counterintuitive, caused for competition. Besides, co-creation can lead to a higher social welfare when the probability of customer's high valuation is relatively high; otherwise, it leads to a lower one. Within co-creation, the application of price discrimination can effectively alleviate competition and bring firms more profits when customer's ex-ante valuation is more likely to be high; otherwise, it will hurt firms. Price discrimination can enhance the social welfare when the probability of customer's high valuation is relatively low; otherwise, it will decrease the social welfare.

Keywords: Co-creation; Experience goods; Valuation uncertainty; Price discrimination; Competition (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:237:y:2021:i:c:s0925527321001213

DOI: 10.1016/j.ijpe.2021.108145

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