Asymmetric Consumer Learning and Inventory Competition
Posted: 31 Oct 2008
Date Written: February 2005
We develop a model of consumer learning and choice behavior in response to uncertain serviceat the marketplace. Learning could be asymmetric, i.e., consumers may associate differentweights with positive and negative experiences. Under this consumer model, we characterize thesteady-state distribution of demand for retailers given that each retailer holds constant in-stockservice level. We then consider a non-cooperative game at the steady-state between two retailerscompeting on the basis of their service levels. Our model yields a unique pure strategy Nashequilibrium. We show that asymmetry in consumer learning has a significant impact on theoptimal service levels, market shares and profits of the retailers. When retailers have differentcosts, it also determines the extent of competitive advantage enjoyed by the lower cost retailer.
Keywords: Asymmetric Consumer Learning, Customer Satisfaction, Inventory Competition, Retail Operations
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