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

Gad Allon () and Achal Bassamboo ()
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Gad Allon: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Achal Bassamboo: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208

Management Science, 2011, vol. 57, issue 4, 713-726

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 customers' 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 customers' 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. This paper was accepted by Yossi Aviv, operations management.

Keywords: inventory; cheap talk; revenue management (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:57:y:2011:i:4:p:713-726

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