Consumer Learning from Own Experience and Social Information: An Experimental Study

40 Pages Posted: 26 Jul 2018 Last revised: 27 Apr 2020

See all articles by Andrew M. Davis

Andrew M. Davis

Cornell University - Samuel Curtis Johnson Graduate School of Management

Vishal Gaur

Cornell University - Samuel Curtis Johnson Graduate School of Management

Dayoung Kim

National University of Singapore (NUS) - Global Asia Institute

Date Written: April 23, 2020

Abstract

We investigate how different types of social information affect the demand characteristics of firms competing through service quality. We first generate behavioral hypotheses around both consumers' learning behavior and firms' corresponding demand characteristics: market share, demand uncertainty, and rate of convergence. We then conduct a controlled human-subject experiment where a consumer chooses to visit one of two firms, each with unknown service quality, in a repeated interaction and is exposed to different information treatments from a social network: (1) no social information, (2) share-based social information which details the percentage of people that visited each firm, (3) quality-based social information which illustrates the percentage of people that received a satisfactory experience from each firm, or (4) full social information which contains both share-based and quality-based social information. A key insight from our study is that different types of social information have different effects on firms' demand. First, promoting quality-based social information leads to a significantly higher market share, lower demand variability, and faster rate of convergence, for a firm with significantly better service quality. Second, when the higher quality firm has only a marginal advantage over the other firm, promoting only share-based information leads to higher market share and lower demand variability. A third important result is that providing only one type of social information can actually be more helpful to the higher quality firm than providing full social information.

Keywords: social information, behavioral operations management, service competition, online retail

Suggested Citation

Davis, Andrew M. and Gaur, Vishal and Kim, Dayoung, Consumer Learning from Own Experience and Social Information: An Experimental Study (April 23, 2020). Available at SSRN: https://ssrn.com/abstract=3208758 or http://dx.doi.org/10.2139/ssrn.3208758

Andrew M. Davis

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Vishal Gaur

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Gaur/

Dayoung Kim (Contact Author)

National University of Singapore (NUS) - Global Asia Institute ( email )

10 Lower Kent Ridge Road
Block S17 #03-01
Singapore
Singapore

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