Buying from the babbling retailer? The impact of availability information on customer behavior

Gad Allon*, Achal Bassamboo

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

28 Scopus citations

Abstract

Provision of real-time information by a firm to its customers has become prevalent in recent years in both the service and retail sectors. In this paper, we study a retail operations model where customers are strategic in both their actions and in the way they interpret information, whereas the retailer is strategic in the way it provides information. This paper focuses on the ability (or the lack thereof) to communicate unverifiable information and influence customers' actions. We develop a game-theoretic framework to study this type of communication and discuss the equilibrium language emerging between the retailer and its customers. We show that for a single retailer and homogeneous customer population setting, the equilibrium language that emerges carries no information. In this sense, a single retailer providing information on its own cannot create any credibility with the customers. We study how the results are impacted due to the heterogeneity of the customers. We provide conditions under which the firm may be able to influence the customer behavior. In particular, we show that the customers' willingness to pay and willingness to wait cannot be ranked in an opposite manner. However, even when the firm can influence each customer class separately, the effective demand is not impacted.

Original languageEnglish (US)
Pages (from-to)713-726
Number of pages14
JournalManagement Science
Volume57
Issue number4
DOIs
StatePublished - Apr 1 2011

Keywords

  • Cheap talk
  • Inventory
  • Revenue management

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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