Pricing Strategies Under Behavioral Observational Learning in Social Networks

Forthcoming, Production and Operations Management

38 Pages Posted: 18 Jan 2017

See all articles by Liangfei Qiu

Liangfei Qiu

University of Florida - Warrington College of Business Administration

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management

Date Written: January 13, 2017

Abstract

The increasing pervasiveness of social networks allows users to share purchase behaviors with their online friends. In the present study, we examine optimal pricing strategies of a monopolistic firm using an analytical model that accounts for behavioral observational learning in social networks. We show that a seller could potentially control the information available to future customers and induce behavioral observational learning by using an information-revealing pricing strategy. This result suggests that offering introductory discounts is not always an effective method to boost purchases in social networks. It could prevent the behavioral observational learning that would increase future customers’ willingness to pay.

Keywords: observational learning, social networks, optimal pricing

JEL Classification: D83, D42, M15

Suggested Citation

Qiu, Liangfei and Whinston, Andrew B., Pricing Strategies Under Behavioral Observational Learning in Social Networks (January 13, 2017). Forthcoming, Production and Operations Management, Available at SSRN: https://ssrn.com/abstract=2899047

Liangfei Qiu (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/qiuliangfei/

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States
512-471-8879 (Phone)

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