Information Strategies of new Product Introduction in Vertical Markets

Li Yimeng, Franco Mariuzzo, Nikolaos Korfiatis () and Yu Xiong
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Li Yimeng: Centre for Competition Policy and Norwich Business School, University of East Anglia
Franco Mariuzzo: Centre for Competition Policy and School of Economics, University of East Anglia
Yu Xiong: Newcastle Business School, Northumbria University

No 2017-03, Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) from Centre for Competition Policy, University of East Anglia, Norwich, UK.

Abstract: An overwhelming stream of research suggests that online reviews impact firms' profits positively. In this study we show conditions where this may not hold true. In a vertical market, we identify strategies that a manufacturer can utilize to affect a retailer's attitude towards publicizing consumer reviews. We model a two-period multi-stage game where vertically integrated and separated firms co-exist and choose prices (of old and new products) and product quality (of new products) along with information strategies. We study the extreme situation where new products have no reviews available yet (i.e., only old products have reviews or the possibility of having reviews). Our main findings are that in a separated distribution channel, the manufacturer always benefits from the availability of online reviews, whereas the retailer only benefits if consumer valuation for a new product is sufficiently low. When competition is not too tough and consumer valuation for the new product is not too high, the manufacturer may opt for discounting the wholesale prices to prompt the retailer to post the online reviews. Furthermore, when consumer uncertainty for the new product is sufficiently low, the optimal strategy for the manufacturer is to limit the release of technical information.

Keywords: Channel Relationships; Competitive Analysis; Marketing Strategy; Word-of-Mouth (search for similar items in EconPapers)
Date: 2017-10-01
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