Exclusivity as a Signal of Quality in a Market with Word-of-Mouth Communication

Ashoori Minoo (), Schmidbauer Eric () and Stock Axel ()
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Ashoori Minoo: Department of Managerial Studies, Purdue University-Northwest, 2200 169th St, Hammond, IN46323, USA
Schmidbauer Eric: Department of Economics, College of Business Administration, University of Central Florida, 4336 Scorpius St., Orlando, FL32816, USA
Stock Axel: Department of Marketing, College of Business Administration, University of Central Florida, 4336 Scorpius St., Orlando, FL32816, USA

Review of Marketing Science, 2020, vol. 18, issue 1, 99-115

Abstract: In some markets consumers seek exclusive consumption experiences, yet in these markets businesses sometimes market their goods widely and at low prices during an introduction period. We use a two-period game-theoretic model to provide a signaling explanation for this phenomenon. In our model, exclusivity-seeking consumers must infer product quality from its price and level of exclusivity in the initial stage. After purchase consumers communicate the true learned quality through word-of-mouth (WOM) so that the entire market becomes informed, including a group of new consumers whose size depends on the number of introductory purchasers and the strength of WOM. We show that a high-quality seller signals by marketing widely when the desire for exclusivity is intermediate and WOM is strong.

Keywords: exclusivity; word-of-mouth communication; signaling; game theory (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1515/roms-2020-0022

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