Quality and pricing decisions for product upgrade: Does valuation uncertainty always hurt the vendor?

Abstract

Product upgrade is an effective method for vendor to maintain and grow its market share. Consumers encounter difficulties in evaluating product utility or value because of product quality and misfit uncertainty. Considering valuation uncertainty, we study the vendor's upgrade strategy (including quality and pricing decisions) for repeat purchase products. The results show that the vendor can benefit from a decline in quality uncertainty. Misfit uncertainty impacts the vendor's profit nonmonotonically, depending on consumers' quality evaluation. As quality evaluation improves, the reduction in misfit uncertainty may hurt the vendor's profit. The results provide guidelines for vendor's product updates and upgrades.