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

Dynamic Games and Applications Seminar

Speaker: Jafar Chaab – HEC Montréal, Canada

Webinar link
Webinar ID: 962 7774 9870
Passcode: 285404

Abstract: 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)