Are we buddies- evaluating the impact of “word-of-mouth” on competing pricing strategies

摘要

This paper quantifies the effect of “word-of-mouth” marketing strategy on pricing decisions in a competing duopoly market. Assuming that consumer arrivals follow a Poisson Process, a consumer's purchasing decision depends on his individual judgment and probability of his friends' existing selections, who connect to him in a ‘scale-free’ social network. Firms then make pricing decisions responding to the social interactions. Based on a multi-agent modeling and simulation approach, the paper finds that firms can price higher and are better off when consumers' purchasing decisions are influenced by their friends' selection. In addition, one firm could achieve competition advantage by offering rebate to early consumers if the other does not.