Dynamic Pricing Of Competitive Products With Consumer Learning

Since the COVID-19 epidemic,the number of Chinese consumers shopping online has gradually increased.In this environment,social e-commerce has also achieved rapid development.Consumers not only make purchase decisions based on price,but also exchange product usage opinions and learning product information on social platforms to make purchasing decisions.Many brand owners are also aware of its importance and have deployed social e-commerce.In a competitive environment,how to choose an appropriate operation strategy for the increasing number of social learning consumers and different consumer learning situations will be a challenge for the firms in social e-commerce.On the other hand,related research only focuses on firms’ operational decisions considering consumers’ social learning behavior in a monopoly environment,but ignores the proportion of social learning consumers in a competitive environment and the impact of consumers’ social learning behavior on firms’ operational decisions.Based on the above practical background,this research develops two two-period Hotelling models,using game theory methods to study how the proportion of social learning consumers affects the pricing and quality decisions of competing firms,and how consumer learning behaviors affect competing firms’ pricing leadership decisions.In the first model,this research considers two competing firms that sell two quality differentiated products in two periods and takes into account the different decisions of firms at the retail and manufacturing sides.There are two types of consumers in the market,one is regular consumers,who do not have social learning behavior;the other is social learning consumers,who learn the product experience information posted by previous users in the online community(e.g.,Tiktok and Wotobuy),and may transfer to purchase other products.All consumers make purchasing decisions in two periods.In the second model,this research considers consider two competing firms that sell two quality-differentiated products over two periods,in which the high-or lowquality firms has the option to act as a pricing leader or follower in the first or second periods.Two groups of consumers make their purchase decisions in the first or second periods,with the former consumers using the experience available to the latter from online communities.Our analysis indicates that competition intensity and consumers’ reviews are two interacting forces that steer the equilibrium decisions of the two competing firms.Our analysis indicates that competition intensity and consumers’ reviews are two interacting forces that steer the equilibrium decisions of the two competing firms.According to the first model,this research finds that in the retail competition,when the proportion of social learning consumers increases,the competing firms should reduce the differentiation between products;when consumer learning becomes negative,the competing firms should increase the differentiation between products.In the competition at the manufacturing side,this research finds that the increase in the proportion of social learning consumers will force the competing firms to reduce the quality level of the products,while the increase of the consumer learning rate will force the competing firms to improve the quality level of the products.When the proportion of social learning consumers increases,the competing firms should reduce the differentiation between products;different from the scenario about the competition at the retail side,when consumer learning is sufficiently negative,the profits of competing firms will increase,which shows that the firms at manufacturing side prefer negative consumer learning.According to the second model,this research finds that when competition intensity is high(low),consumers’ positive reviews are beneficial(detrimental)to both firms’ profits and the consumer surplus(only for a neutral review).Additionally,both firms are willing to be pricing leaders(followers)only if competition intensity is low(high)in the first period and consumers’ reviews are negative(positive)in the second period.Interestingly,the high-quality firm acting as a pricing leader in both periods leads to a ``winwin’’ outcome for the two competing firms only if consumers’ reviews are not too positive and competition intensity is moderate.Overall,our research not only enriches studies of pricing leadership and consumer learning for two competing firms,but also provides novel managerial implications for the firms’ pricing strategies.