Information Strategies of New Product Introduction in Vertical Markets

Center for Competition Policy (CCP) Working Paper 17-3

41 Pages Posted: 24 May 2017

See all articles by Yimeng Li

Yimeng Li

University of East Anglia (UEA) - Norwich Business School

Franco Mariuzzo

University of East Anglia (UEA) - Centre for Competition Policy

Nikolaos Korfiatis

University of East Anglia (UEA) - Norwich Business School

Yu Xiong

University of Newcastle (Australia) - Newcastle Business School

Date Written: May 20, 2017

Abstract

An overwhelming stream of research suggests that online reviews impact firms' profits positively. In this study, we show conditions where this may not hold true. In a vertical market, we identify strategies that a manufacturer can utilize to affect a retailer's attitude towards publicizing consumer reviews. We model a two-period multi-stage game where vertically integrated and separated firms co-exist and choose prices (of old and new products) and product quality (of new products) along with information strategies. We study the extreme situation where new products have no reviews available yet (i.e., only old products have reviews or the possibility of having reviews). Our main findings are that in a separated distribution channel, the manufacturer always benefits from the availability of online reviews, whereas the retailer only benefits if consumer valuation for a new product is sufficiently low. When competition is not too tough and consumer valuation for the new product is not too high, the manufacturer may opt for discounting the wholesale prices to prompt the retailer to post the online reviews. Furthermore, when consumer uncertainty for the new product is sufficiently low, the optimal strategy for the manufacturer is to limit the release of technical information.

Keywords: Channel Relationships, Competitive Analysis, Marketing Strategy, Word-of-Mouth

Suggested Citation

Li, Yimeng and Mariuzzo, Franco and Korfiatis, Nikolaos and Xiong, Yu, Information Strategies of New Product Introduction in Vertical Markets (May 20, 2017). Center for Competition Policy (CCP) Working Paper 17-3. Available at SSRN: https://ssrn.com/abstract=2972648 or http://dx.doi.org/10.2139/ssrn.2972648

Yimeng Li

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

Franco Mariuzzo

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Nikolaos Korfiatis (Contact Author)

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

Yu Xiong

University of Newcastle (Australia) - Newcastle Business School ( email )

City Campus East-1
NE1 8ST
United Kingdom

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