Search

Merchants need not fear platform entry because that can raise merchants' profits by resolving quality uncertainty for consumers. Merchants are wary of a platform's competitive entry reducing sales and margins. Profit-maximizing platforms seek to provide credible quality information to gain consumer trust and confidence. Can a platform enter so that resulting multisender prices alleviate consumers' uncertainty by signaling quality? Can merchants also benefit from platform entry? We provide answers by analyzing strategic platform and merchant pricing under quality uncertainty. A modeling innovation is a leader-follower framework for platform-merchant competition. Consumers resolve uncertainty using both platform and merchant prices. Using what we label perfect Bayes-consistent beliefs, we identify perfect Bayesian equilibrium that satisfies the intuitive criterion, and also out-of-equilibrium beliefs that are unprejudiced. A substantive finding is that platform entry can raise merchant profits when the quality is high by moving the equilibrium from pooling to separating, and supporting higher prices. Another strategic consequence of platform entry could be a separating equilibrium with incomplete market coverage due to price distortion moving to one of complete market coverage due to seller competition. Indeed, conditions exist in our model for an equilibrium outcome identical to complete information. Finally, facing entry cost, a platform may choose to enter only with high quality but quality revelation remains price dependent and not based on mere entry. History: Yuxin Chen served as the senior editor for this article. Funding: Y. Qiu was supported by the Natural Science Foundation of China [Grant 71902142] toward completion of this paper. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mksc.2021.0227. [ABSTRACT FROM AUTHOR]

The mere preannouncement of a new product can affect consumer choice, thus complicating preannouncement strategy. This is because a preannounced product that is unavailable immediately can still be one of the alternatives in a consumer's mind at the time of choice. Such unavailable products, also known as phantom products, influence the reference point that consumers compare alternatives to when making a choice, as has been widely demonstrated in experimental studies. Thus, in addition to encouraging consumers to postpone purchase in favor of a future product, preannouncement also changes their preference for the currently available products when consumers do not prefer to postpone. In this paper we explore preannouncement strategy by analyzing a model that incorporates the effect of new product preannouncement (NPP) on consumer preferences and compare the results with a benchmark case in which consumer preferences across the existing products are not influenced by preannouncement. We find that when we take into account the effect of NPP on consumer preferences across the existing products, although postponement of purchase by some consumers remains beneficial, the preference for the current product offering with a lower quality can suffer so much that the significant lowering of current profits is not offset by future gains. Thus, preannouncement may no longer be the optimal strategy for the firm with a lower-quality product, which in turn explains the 'Osborne effect.' Our results also challenge the conventional wisdom in new product preannouncement literature. History: Accepted by Juanjuan Zhang, marketing. Supplemental Material: The online technical appendix is available at https://doi.org/10.1287/mnsc.2018.3124. Keywords: new product preannouncement * phantom products * loss aversion * reference dependent preferences * competition * Osborne effect, 1. Introduction A well-established feature of consumer choice in a variety of situations is loss aversion that makes consumer preferences context dependent (Ho et al. 2006, DeliaVigna 2009). In this [...]

Using the University of Texas at Dallas database on publications in the top 24 business journals, we examine the evolution of Marketing Science as reflected by participation of faculty from [...]