Group for Research in Decision Analysis

Dynamic pricing and advertising in the presence of strategic consumers and social contagion: A mean-field game approach

Jafar Chaab HEC Montréal, Canada

Jafar Chaab

Presentation on YouTube

We introduce a framework for new product diffusion that integrates consumer heterogeneity and strategic social influences at individual level. Forward-looking consumers belong to two segments: individualists, whose adoption decision is influenced by the price and firm’s goodwill, and conformists, whose adoption decision depends on social influences and the price. We use a mean-field game approach to translate consumer strategic interactions into aggregate social influences. We provide the conditions for existence and uniqueness of equilibrium. Our results suggest that the firm adopts a penetration pricing strategy when consumers are forward-looking, whereas it implements a penetration-skimming policy in face of myopic consumers.

(Jointly with Rabih Salhab and Georges Zaccour)