Social Sharing, Public Perception, and Brand Competition in a Horizontally Differentiated Market
64 Pages Posted: 8 Apr 2022 Last revised: 18 Jul 2022
Date Written: March 27, 2022
We examine how social sharing of consumers’ brand purchases affects brand competition in a market where different types of consumers, characterized by their distinct personal characteristics (i.e., personalities, hobbies, and lifestyles) and brand preferences (i.e., being loyal to one of two horizontally differentiated brands or neither), all desire accurate public perception of their true type. Social sharing of a consumer’s brand purchase allows the public to infer her type, but such inference can be mistaken if a brand is purchased by multiple types of consumers. A consumer receives a higher public-perception utility from purchasing a brand if social sharing of her purchase leads to a higher chance of accurate public perception. Our analysis shows that social sharing enhances the profit of the advantaged brand that attracts a larger size of loyal consumers but can hurt the profit of the disadvantaged brand that attracts a smaller size of loyal consumers. That is, in a horizontally differentiated market, social sharing may further strengthen the competitive status of the advantaged brand. Interestingly, the disadvantaged brand may become more likely to suffer from social sharing if it follows the conventional wisdom to expand the loyal segment. When the public can learn a consumer’s true type from other information sources (e.g., the consumer’s online blog), social sharing of consumers’ brand purchases brings a smaller profit gain to the advantaged brand. The disadvantaged brand may be better off or worse off, depending on the size of its loyal segment. Our theoretical findings shed light on how brands can devise competitive strategies to leverage the power of social media.
Keywords: Public Perception, Social Sharing, Competitive Strategies, Horizontal Differentiation, Game Theory
JEL Classification: M15, M31
Suggested Citation: Suggested Citation