Consumer heterogeneity, uncertainty, and product policies

This dissertation consists of three essays on the implications of consumer heterogeneity and uncertainty for firms' strategies. The first essay analyzes how firms should develop add-on policies when consumers have heterogeneous tastes and firms are vertically differentiated. The theory provides an explanation for the seemingly counter-intuitive phenomenon that higher-end hotels are more likely than lower-end hotels to charge for Internet service, and predicts that selling an add-on as optional intensifies competition, in sharp contrast to standard conclusions found in the literature. The second essay examines how firms should develop product and pricing policies when customer reviews provide informative feedback about improving product or service quality. The analysis provides an alternative view of customer reviews such that they not only can help consumers learn about product quality, but also can help firms learn about problems with their products or services. The third essay studies the implications of cognitive simplicity for consumer learning problems. We explore one viable decision heuristic - index strategies, and demonstrate that they are intuitive, tractable, and plausible. Index strategies are much simpler for consumers to use but provide close-to-optimal utility. They also avoid exponential growth in computational complexity, enabling researchers to study learning models in more-complex situations.

Department dc:contributor.department

Sloan School of Management.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2015

Author dc:creator

• Lin, Song

Advisor dc:contributor.advisor

• Birger Wernerfelt.

• Sloan School of Management.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/98609

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/98609