Essays on Consumer Information Acquisition in Marketing Channels

Abstract

Overall, this dissertation employs game theoretical models to investigate consumer information acquisition. Its principal novelty is that I incorporate a richer supply structure with active retailers. This allows me to explore issues that are unique to the marketing channel. Essay 1: Prominent Retailer and Intra-brand Competition studies consumers’ active information acquisition patterns. Specifically, I investigate the interaction between active consumer search and retailers’ pricing decisions when the search share is disproportionally distributed. I am motivated by the phenomenon of “prominence”. That is, internet retail search traffic tends to be concentrated on a “prominent” retailer, such as Amazon in the United States or Alibaba in China. I develop a sequential search model to provide insights into the impact of prominence in an intra-brand setting. My research sheds light on (1) how a prominent retailer’s relative prices hinge on a threshold level of prominence, (2) the consequences of search traffic volumes on a retailer’s profit, and (3) the impact of search traffic concentration on competition and consumer welfare. Surprisingly, I find that more search traffic can reduce a retailer’s profit. Essay 2: Retailer Reputation in a Distribution Channel investigates the consumer’s passive acquisition of information. Specifically, I am interested in the interplay between the consumer’s price-quality inference and vertical coordination between the manufacturer and the retailer. Ample empirical evidence supports that consumers infer unobserved product qualities from observed prices (e.g., Tellis and Wernerfelt 1987) and seller reputation (e.g., Purohit and Srivastava 2001). However, the prices themselves depend on the vertical supply structure. I develop a model of signals issued by firms in a vertically separated (decentralized) channel. Specifically, a manufacturer sells through a retailer with a limited reputation where consumers use the observed retail price to infer product quality. I find that the signaling role of the retail price can facilitate channel coordination. Furthermore, this effect is moderated by the retailer’s reputation. Surprisingly, the manufacturer, the retailer, and consumers can all become better off when the retailer is less reputable.