Pricing Strategies under Behavioral Observational Learning in Social Networks

Liangfei Qiu; Andrew B. Whinston

doi:10.1111/poms.12693

Pricing Strategies under Behavioral Observational Learning in Social Networks

Liangfei Qiu¹; Andrew B. Whinston²

¹ Warrington College of Business, University of Florida, Gainesville, Florida, 32611, USA · ² McCombs School of Business, University of Texas at Austin, Austin, Texas, 78705, USA

Production and Operations Management 2017

The increasing pervasiveness of social networks allows users to share purchase behaviors with their online friends. In this study, we examine optimal pricing strategies of a monopolistic firm using an analytical model that accounts for behavioral observational learning in social networks. We show that a seller could potentially control the information available to future customers and induce behavioral observational learning, using an information‐revealing pricing strategy. This result suggests that offering introductory discounts is not always an effective method to boost purchases in social networks. It could prevent the behavioral observational learning that would increase future customers' willingness to pay.

DOI: 10.1111/poms.12693
Volume: 26 (7)
Pages: 1249-1267
Language: en
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Sources: crossref