Reference Distorted Prices

I show that when consumers (mis)perceive prices relative to reference prices, budgets turn out to be soft, prices tend to be lower and the average quality of goods sold decreases. These observations provide explanations for decentralized purchase decisions, for people being happy with a purchase even when they have paid their evaluation, and for why trade might affect high quality local firms 'unfairly'

An integrative framework of preemption strategies

Pre-print; author's draftThis paper performs a review of the various pre-emption strategies prescribed in the economics literature. These are cost superiority, consumers' switching cost, channel exclusivity, environmental barriers of entry and credible commitment to react aggressively. Through our analysis, we develop an integrative framework of the pre-emption strategies that will result in long-term payoffs to the firm. The framework proposes that there are two key dimensions—strategic advantage and strategic focus—and identify five generic types of pre-emption strategies for market incumbents. These are the switching cost, blockade, credible commitment, tie-up, and cost leadership strategies. The pre-emption strategies and the framework presented can assist managerial decision-making for the successful pre-emption of potential competition to complement their existing efforts

The Effect of Online Word-of-Mouth on Risk Assessment for an Experience Service as Price Acceptability Changes

The influence of online word-of-mouth (WOM) on risk assessments for an experience good, in the presence of different price acceptability levels, was examined through 12 online experiments using potential travelers presented with realistic information settings. Online WOM was found more influential than advertised price as a cue to risk perceptions. The perceived risk level was raised when positive and negative online WOM were present compared with when WOM was either absent or positive only. The negative effect of inconsistent online WOM on consumers' risk perceptions was found in all price conditions