Promotional Chat on the Internet
Jaewook Kim
Content
IntroductioncMotive
Results
Promotional Chat Rooms and ExamplesPromotional Chat Rooms and Examples
Three Main Questions
B i M d lBasic ModelGame theory
Messaging Online
Firm’s Problem
Consumer’s Problem
Perfect Bayesian Equilibrium
Consumer Welfare and Value of Information
Discussion and ConclusionDiscussion and Conclusion
Introduction
Motive
f ?
Motive
Word of mouth online, is it credible?
Which products should the firms promote?
Inferior or Superior?
How does consumer welfare come into play?
Introduction
ResultsResults
Unique Equilibrium exists
Where online chat is still credible
Firms spend more on inferior products
Consumer welfare and price are inversely proportional
Introduction
Promotional Chat Rooms and Examples
C A
Promotional Chat Rooms and Examples
Christina Aguilera debut album
www.movie.Naver.com
www.IMDB.com
www.dcIncide.com
Introduction
Comparison
Promo. Chat
Manual
Traditional Marketing
Automated
More Convincing
Everyday Speak Marketing SpeakEveryday Speak
Few Regulations
Must come from inside
g p
Many Regulations
Must come from inside
the community
Introduction
Three main questionsThree main questions
Is word of mouth online persuasive
Valuable for a firm whose product is more appealing or less appealing
Relative consumer welfare benefits and losses by promo chat. c y p c
Basic Model
Game Theory
A BFirm Firm
Uninformed InformedDC UninformedCostumer
InformedCostumer(Early Adapter)
Basic Model
A d B ti fi
Game Theory
A and B are competing firms
The firms and D have knowledge of superior product
If A is superior →
If B is superior →If B is superior →
Probability that
Two possible messages: “AB” A is superior than Bp g p
“BA” B is superior than A
Basic Model
Game Theory
A BSuperior FirmSends “AB”
Inferior FirmSends “BA”
Informed DC Costumer
(Early Adapter)Sends “AB”
Basic Model
InformedGame Theory
A BSuperior FirmSends “AB”
Inferior FirmSends “BA”
Informed DC Costumer
(Early Adapter)Sends “AB”
Basic Model
Game Theory
A BSuperior FirmSends “AB”
Inferior FirmSends “BA”
Uninformed
Informed
Uninformed
DC Costumer(Early Adapter)Sends “AB”
Basic Model
Ch t
Game Theory
Chat
State of world observed by
Prices are set A, B, D send
C receives one message;
C buysOne
A,B,D messages C may changeprior belief
product
Messaging online
Firm’s Problem
Consumer’s Problem
Perfect Bayesian Equilibrium
Proposition 1. If = ½ and the parameters satisfy one of the
following inequalities an unique perfect Bayesian equilibrium existsfollowing inequalities, an unique perfect Bayesian equilibrium exists,
and it is persuasive. In this equilibrium the firm with the superior
Product has a higher expected profit.
(1)
(2)
(3)
Perfect Bayesian Equilibrium
Proposition 2. The likelihood ratio of the signals,
is decreasing in P and increasing in
Increase in Price increases the incentive for firms to post messages
increases noise into the system
Increase in increases signal to noise rationIncrease in increases signal to noise ration
Consumer Welfare and Value of InformationInformation
(1) system with word of mouth but no promotional chat
Regulated SystemRegulated System
Anonymous Promotion is outlawed
Upper bound of consumer welfare
(2) system with neither word of mouth nor promotional Chat
No Online Promotion
C purchases solely on prior beleif
Lower bound of consumer welfare
Consumer Welfare and Value of InformationInformation
Proposition 3.
The value of information(welfare loss) due to anonymous promotion isThe value of information(welfare loss) due to anonymous promotion is
increasing(decreasing) in , increasing in and
decreasing(increasing) in P.
Discussion and Conclusion
supports the superior firm
Superior firm has an incentive to increaseSuperior firm has an incentive to increase
depends on action prior to promotional chat
increase
decrease promotional chat SNR
Anonymity allows firms to directly manipulate consumersp
Still informative due to actions of legitimate chatters.
Firms with lower quality engage in more promotional chatFirms with lower quality engage in more promotional chat
They have more reason to promote:
no free publicity