Selling to Conspicuous Consumers: Pricing, Production, and Sourcing Decisions

Tereyagoglu, Necati; Veeraraghavan, Senthil K.

doi:10.1287/mnsc.1120.1545

Cited by 106 publications

(80 citation statements)

References 34 publications

(37 reference statements)

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“…Candogan et al (2012) and Hu and Wang (2013) study optimal pricing strategies in social networks with positive externalities. Tereyagoglu and Veeraraghavan (2012) consider a setting in which consumers may use their purchases to display their social status. The type of social interaction considered in this paper is different: here, consumers interact with each other through buyer reviews with the goal of learning the unobservable quality of a new product; in this respect, our work connects to the SL literature, which we discuss next.…”

Section: Literature Reviewmentioning

confidence: 99%

Dynamic Pricing in the Presence of Social Learning and Strategic Consumers

2017

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When a product of uncertain quality is first introduced, consumers may be enticed to strategically delay their purchasing decisions in anticipation of the product reviews of their peers. This paper investigates how the presence of social learning interacts with the adoption decisions of strategic consumers and the dynamicpricing decisions of a monopolist firm, within a simple two-period model. When the firm commits to a price path ex ante (pre-announced pricing), we show that the presence of social learning increases the firm's ex ante expected profit, despite the fact that it exacerbates consumers' tendency to strategically delay their purchase. As opposed to following a price-skimming policy which is always optimal in the absence of social learning, we find that, for most model parameters, the firm will announce an increasing price plan. When the firm does not commit to a price path ex ante (responsive pricing), interestingly, the presence of social learning has no effect on strategic purchasing delays. Under this pricing regime, social learning remains beneficial for the firm and prices may either rise or decline over time, with the latter being ex ante more likely.Furthermore, we illustrate that contrary to results reported in existing literature, in settings characterized by social learning, price-commitment is generally not beneficial for a firm facing strategic consumers.

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Section: Literature Reviewmentioning

confidence: 99%

Dynamic Pricing in the Presence of Social Learning and Strategic Consumers

2017

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“…Tereyagoglu and Veeraraghavan (2012) analyze production decisions when consumers engaging in conspicuous consumption value exclusivity (i.e., when others are excluded from consumption), while Veeraraghavan and Debo (2011) study the queueing implications of herding behavior (i.e., when others also join in consumption). Similar to the above, our paper joins the operations management literature and explores the impact of social comparisons.…”

Section: Figurementioning

confidence: 99%

Optimal Design of Social Comparison Effects: Setting Reference Groups and Reference Points

Roels

2013

SSRN Journal

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In this paper, we study how social planners should exploit social comparisons to pursue their objectives. We consider two modes of social comparison, referred to as behind-averse and ahead-seeking behaviors, depending on whether individuals experience a utility loss from underperforming or a utility gain from overperforming relative to their peers. Modeling social comparison as a game between players, we find that ahead-seeking behavior leads to output polarization, whereas behind-averse behavior leads to output clustering. A social planner can mitigate these effects in two ways: (i) by providing the full reference distribution of outputs instead of an aggregate reference point based on the average output and (ii) by assigning players into uniform rather than diverse reference groups. Social planners may thus need to tailor the reference structure to the predominant mode of social comparison and their objective. A performance-focused social planner may set the reference structure so as to maximize the output of either the top or the bottom player depending on whether she puts greater marginal weight to larger or smaller outputs. When the social planner also cares about utility, she faces a dilemma because performance optimization may not be aligned with utility maximization. Inevitably, the social planner will have to confront equity issues because better performance may not reflect greater effort or greater ability. Xuanming SuThe Wharton School, University of Pennsylvania, 3730 Walnut Street, Philadelphia, PA 19104, USA, xuanming@wharton.upenn.edu In this paper, we study how social planners should exploit social comparisons to pursue their objectives.We consider two modes of social comparison, referred to as behind-averse and ahead-seeking behaviors, depending on whether individuals experience a utility loss from under-performing or a utility gain from overperforming relative to their peers. Modeling social comparison as a game between players, we find that aheadseeking behavior leads to output polarization whereas behind-averse behavior leads to output clustering.A social planner can mitigate these effects in two ways, (i) by providing the full reference distribution of outputs instead of an aggregate reference point based on the average output, and (ii) by assigning players into uniform rather than diverse reference groups. Social planners may thus need to tailor the reference structure to the predominant mode of social comparison and their objective. A performance-focused social planner may set the reference structure so as to maximize the output of either the top or the bottom player depending on whether she puts greater marginal weight to larger or smaller outputs. When the social planner also cares about utility, she faces a dilemma because performance-optimization may not be aligned with utility-maximization. Inevitably, the social planner will have to confront equity issues because better performance may not reflect greater effort or greater ability.

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“…An emerging stream in this literature examines the effect of snobbish consumer behavior on a firm's production, rationing, and pricing decisions (Tereyagoglu andVeeraraghavan 2012, Arifoglu et al 2012). We contribute to this literature by analyzing a firm's new product introduction strategy in the presence of snobbish and forward-looking consumers.…”

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confidence: 99%

The Limits of Planned Obsolescence for Conspicuous Durable Goods

Agrawal

Kavadias

Toktay

2016

M&SOM

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A n extensive body of literature argues for the benefits of planned obsolescence, the strategy of designing products with low durability to induce repeat purchases from the consumers and allow the firm to sell a larger volume. Yet, several firms avoid planned obsolescence and instead offer products with high durability. In this paper, we offer a demand-side rationale for a high-durability product design strategy: the exclusivityseeking consumer behavior associated with conspicuous consumption. In the presence of consumers who value exclusivity, we find that firms benefit from designing products with higher durability in conjunction with a high-price, low-volume introduction strategy. A higher durability in such a context leads to greater resale value, allowing the firm to charge a higher price and lower the sales volume to achieve the product exclusivity valued by the consumers. This contrasts with the planned obsolescence strategy that capitalizes on the high sales volume achieved by setting a low new product price. We also show that offering higher durability and charging a higher price are complementary levers to respond to consumers who value exclusivity. Our analysis unearths insights regarding the effect of exclusivity-seeking behavior on a firm's demand and pricing. We show that firms' durability choice may explain the joint increase in price and demand for conspicuous goods.

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Selling to Conspicuous Consumers: Pricing, Production, and Sourcing Decisions

Cited by 106 publications

References 34 publications

Dynamic Pricing in the Presence of Social Learning and Strategic Consumers

Dynamic Pricing in the Presence of Social Learning and Strategic Consumers

Optimal Design of Social Comparison Effects: Setting Reference Groups and Reference Points

The Limits of Planned Obsolescence for Conspicuous Durable Goods

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