Is It Beneficial to Provide Historical Price Information Under Social Influence?

Abstract

Due to dramatic improvements in online shopping and information technology, consumers are able to observe and imitate purchasing behaviors of peer consumers highlighting the critical importance of social influence in online market. In addition, consumers show keen interest in whether they "gain" or "loss" compared with a reference. This paper studies the joint impact of reference price and social influence on consumers' purchasing decisions and firms' pricing strategies by a two-period duopoly model where consumers obtain social utility from sales volume information and gain-or-loss utility from historical price information. We find that social influence has a negative impact on firms' profits. However, with the historical price disclosed, the gain-or-loss perception mitigates the negative effect of social influence by increasing the price in the early period and decreasing price latterly.