625 / 2024-04-28 16:01:44

Dynamic Pricing in the Presence of Social intervention and Consumer Learning

Social media; social intervention; strategic consumers; dynamic pricing; game theory

With the booming growth of social media, the product evaluation by key opinion leader (KOL) plays an increasingly important role in consumers’ purchasing decisions. Especially, for the product that is first introduced with uncertain quality, consumers may strategically delay purchases in anticipation of the KOL’s evaluation, which may be influenced by firms through social intervention. This paper examines how social intervention affects consumer learning and in turn the strategic interaction between a monopolistic firm and strategic consumers in a two-period model. Taking into account discount factors of the firm and consumers, we find that the firm always invests a suitable effort, rather than overexerting, to intervene in the KOL’s evaluation and influence product word-of-mouth (WOM). Nonetheless, social intervention may not invariably benefit the firm, even harm him in some cases. As for pricing policies, although commitment pricing has been deemed an optimal way to respond to strategic consumer behavior in some previous studies, we show that it is suboptimal relative to responsive pricing once profit discount is considered in the absence of social intervention. Dirven by social intervention, responsive pricing and commitment pricing have their own strength.