Monic Sun

How Does the Variance of Product Ratings Matter

This paper examines the informational role of product ratings. We build a theoretical model in which ratings can help consumers figure out how much they would enjoy the product. In our model, a high average rating indicates a high product quality, whereas a high variance of ratings is associated with a niche product, one that some consumers love and others hate. Based on its informational role, a higher variance would correspond to a higher subsequent demand if and only if the average rating is low. We find empirical evidence that is consistent with the theoretical predictions with book data from Amazon.com and BN.com. A higher standard deviation of ratings on Amazon improves a books relative sales rank when the average rating is lower than 4.1 stars, which is true for 35% of all the books in our sample. This paper was accepted by Pradeep Chintagunta, marketing.

Too Much Information? Information Provision and Search Costs

A seller often needs to determine the amount of product information to provide to consumers. We model costly consumer information search in the presence of limited information. We derive the consumer’s optimal stopping rule for the search process. We find that, in general, there is an intermediate amount of information that maximizes the likelihood of purchase. If too much information is provided, some of it is not as useful for the purchase decision, the average informativeness per search occasion is too low, and consumers end up choosing not to purchase the product. If too little information is provided, consumers may end up not having sufficient information to decide to purchase the product. The optimal amount of information increases with the consumer’s ex ante valuation of the product, because with greater ex ante valuation by the consumer, the firm wants to offer sufficient information for the consumer to be less likely to run out of information to check. One can also show that there is an intermediate amount of information that maximizes the consumer’s expected utility from the search problem (social welfare under some assumptions). Furthermore, this amount may be smaller than that which maximizes the probability of purchase; that is, the market outcome may lead to information overload with respect to the social welfare optimum. This paper can be seen as providing conditions under which too much information may hurt consumer decision making. Numerical analysis shows also that if consumers can choose to some extent which attributes to search through (but not perfectly), or if the firm can structure the information searched by consumers, the amount of information that maximizes the probability of purchase increases, but is close to the amount of information that maximizes the probability of purchase when the consumer cannot costlessly choose which attributes to search through.

To Belong or to Be Different? Evidence from a Large-Scale Field Experiment in China

We explore how people balance their needs to belong and to be different from their friends by studying their choices of a virtual-house wall color on a leading Chinese social-networking site. The setting enables us to randomize both the popular color and the adoption rate at the individual level so that our experimental design minimizes informational social influence, homophily, and group-identity signaling to the general public. We find that there exists significant social influence within a user’s friend circles. While learning about the most popular color among a user’s friends generally increases the likelihood for the user to adopt that color, conformity first decreases and then increases with the adoption rate of that choice, which ranges from 50% to 100%. In addition, users who are minority, newer, or of lower social-economic status are more likely to conform upon learning about the popular choice. Our findings are consistent with optimal distinctiveness and middle-status conformity theories and have implications for designing normative marketing campaigns.

Competitive Mobile Geo Targeting

We investigate in a competitive setting the consequences of mobile geo targeting, the practice of firms targeting consumers based on their real-time locations. A distinct market feature of mobile geo targeting is that a consumer could travel across different locations for an offer that maximizes his total utility. This mobile-deal seeking opportunity motivates firms to carefully balance prices across locations to avoid intrafirm cannibalization, which in turn mitigates interfirm price competition and prevents firms from going into a prisoner’s dilemma. As a result, a firm’s profit can be higher under mobile geo targeting than under uniform or traditional targeted pricing. We extend our model in three different directions: (a) a fraction of consumers are not aware of mobile offers outside of their permanent locations, (b) mobile offers can be collected when consumers travel for other reasons, and (c) firms use both permanent and real-time locations when setting prices. Our findings have important manageria...

The Effect of Recycling Versus Trashing on Consumption: Theory and Experimental Evidence

This article proposes a utilitarian model in which recycling could reduce consumers’ negative emotions from wasting resources (i.e., taking more resources than what is being consumed) and increase consumers’ positive emotions from disposing of consumed resources. The authors provide evidence for each component of the utility function using a series of choice problems and formulate hypotheses on the basis of a parsimonious utilitarian model. Experiments with real disposal behavior support the model hypotheses. The findings suggest that the positive emotions associated with recycling can overpower the negative emotions associated with wasting. As a result, consumers could use a larger amount of resources when recycling is an option, and more strikingly, this amount could go beyond the point at which their marginal consumption utility becomes zero. The authors extend the theoretical model and introduce acquisition utility and the moderating effect of the costs of recycling (financial, physical, and mental). From a policy perspective, this research argues for a better understanding of consumers’ disposal behavior to increase the effectiveness of environmental policies and campaigns.

Competitive Mobile Targeting

We investigate in a competitive setting the consequences of mobile targeting, the practice of firms setting prices based on consumers’ real-time locations. A distinct market feature of mobile targeting is that a consumer could travel across different locations for an offer that minimizes his total cost of buying. This cherry picking opportunity imposes constraints on firms to carefully balance prices across locations, which in turn weakens their price competition at each location. As a result, a firm’s profit can be higher under mobile targeting than under uniform pricing or under targeted pricing based on consumers’ permanent location. Extending the main model, we also discuss how the profitability of mobile targeting may change with the fraction of consumers who are mobile accessible to the firms, the distribution of consumers across locations, and the possibility of tracing down a consumer’s base location and restricting him to offers at that location. Our findings have important managerial implications for marketers who are interested in optimizing their mobile targeting strategies.