Bing Jing

Social Learning and Dynamic Pricing of Durable Goods

We analyze the impacts of social learning (SL) on the dynamic pricing and consumer adoption of durable goods in a two-period monopoly. Consumers can make either early, uninformed purchases or late but potentially informed purchases as a result of social learning. Several results are derived. First, we identify the market conditions under which ex ante homogeneous consumers may choose to purchase at different times. Second, equilibrium adoption may demonstrate inertia (where all adopt late) or frenzy (where all adopt early). In particular, adoption inertia appears when SL intensity is reasonably high but may vanish when SL intensity exceeds a certain threshold. Third, firm profits and social welfare first weakly decrease in SL intensity and may then jump up by a lump-sum amount at the threshold SL intensity level mentioned above. Last, we show that the firm potentially benefits from informative advertising or investing to cultivate more social learning.

Finance sourcing in a supply chain

We examine the relative merits of bank versus trade credit in a supply chain consisting of a manufacturer and a capital-constrained retailer. We show that trade credit is more effective than bank credit in mitigating double marginalization in the supply chain when marginal production cost is relatively low, and that bank credit becomes more effective otherwise.

Pricing Experience Goods: The Effects of Customer Recognition and Commitment

In a two-period model of nondurable experience goods, we compare the profit and social welfare effects of behavior-based price discrimination (BBPD) and price commitment (PC) (relative to time-consistent pricing) in a monopoly. We find that when the static, full-information monopoly price is higher (lower) than the mean consumer valuation, PC yields higher (lower) profits and social welfare than BBPD. We also identify the market conditions under which BBPD does not increase firm profits and provide an explanation as to when the firm should discriminate against its first-time and repeat customers, respectively.

Exogenous Learning, Seller-Induced Learning, and Marketing of Durable Goods

When learning of product characteristics takes some time, a firm introducing a new durable faces the trade-off between releasing early to an uninformed market and deferring release to a better-informed market. In a two-period monopoly, we examine the strategic interaction between exogenous learning (EL) and seller-induced learning (SIL) and the firms product release and pricing strategies. The familiar, direct effect of strong learning is to facilitate a higher price for informed customers. We point out its indirect effect of inducing a higher period 1 price for uninformed customers (by lowering their expected utility from learning). These two effects underlie three major results. First, a strong learning intensity does not always imply deferred release. Surprisingly, for medium unit costs, the firm releases late (early) when learning intensity is weak (strong). Second, SIL facilitates different product release strategies, depending on the unit cost level. Potential SIL investment facilitates early release for low or medium unit costs, but may facilitate deferred release for high unit costs. Lastly, when customers have heterogeneous prior valuation, the high-end customers may buy early at a lower price and the low-end customers may buy later at a higher price, contrary to the usual skim pricing with informed customers. This paper was accepted by Preyas Desai, marketing.

Behavior-Based Pricing, Production Efficiency, and Quality Differentiation

In a two-period vertical duopoly, we examine how behavior-based price discrimination (BPD) affects the firms’ endogenous quality differentiation and profits. The firms’ relative production efficiency, defined as the ratio between their unit cost difference and quality difference, plays a crucial role. With exogenous product qualities, BPD always decreases the profits of the more efficient firm, but increases those of the sufficiently less efficient firm. Anticipating its period 2 disadvantage in price discrimination, the less efficient firm competes more vigorously and also gains more in period 1 than its competitor. For the sufficiently less efficient firm, its period 1 gain dominates its period 2 loss, and its total profits increase. With endogenous quality choices, BPD does not alter the low-end quality (at the lower bound of the quality space), but increases the high-end quality, enlarging quality differentiation. This is because under BPD, each firm’s profit gain decreases (or its profit loss increas...

Customer Recognition in Experience vs. Inspection Good Markets

We study the effects of customer recognition and behavior-based price discrimination (BPD) in a two-period experience good duopoly with a discrete value distribution, and we investigate the role of consumers’ ex ante valuation uncertainty in dynamic price competition through comparison with an inspection good duopoly. Several results are reached. First, the firms may reward repeat purchase when the probability of a high value is relatively low and when the high–low value difference is large; otherwise, they may engage in poaching. Second, BPD frequently increases each firm’s total profits, even in the poaching equilibrium. These results contrast with the inspection good duopoly, and the driver is that consumers’ period 2 product preference depends on their realized values in period 1. Third, consumers’ ex ante valuation uncertainty may increase or decrease firm profits without BPD, and it weakly increases firm profits with BPD, relative to the inspection good duopoly. This paper was accepted by J. Miguel Villas-Boas, marketing .

Lowering Customer Evaluation Costs, Product Differentiation, and Price Competition

When match uncertainty is resolved via costly evaluation, the first product sampled by a customer is more likely to make the sale. This prompts firms to lower their products’ evaluation costs to attract customers to sample their products first. Such efforts by firms are called customer learning investment (CLI). When product quality is freely observable but horizontal match is not, we examine how CLI choices interact with quality and price competition in a duopoly. CLI has a competition effect in that a higher CLI of a firm increases its demand but decreases that of its rivals. In the market-covered duopoly, both qualities will decrease (increase) when the high-end (low-end) firm invests more in customer learning, and remain unchanged when they invest equally, relative to when neither firm invests. We further show that the firm with a higher relative production efficiency invests more in customer learning than the competitor. In the market-not-covered duopoly, CLI by the low-end firm also creates a market-expansion effect by inducing some additional low-end customers to sample and purchase its product. This may induce it to invest more than the high-end firm, even when the latter has a higher relative production efficiency.

Finance Sourcing in a Supply Chain

We examine the relative merits of bank versus trade credit in a supply chain consisting of a manufacturer and a capital-constrained retailer. We show that trade credit is more effective than bank credit in mitigating double marginalization in the supply chain when marginal production cost is relatively low, and that bank credit becomes more effective otherwise.