Pricing and Service Level Decisions under a Sharing Product and Consumers’ Variety-Seeking Behavior

Abstract

We developed a two-period duopoly model to show how consumers’ variety-seeking behavior affects the pricing and service level decisions of a traditional product and a sharing product. Our analysis revealed that, without considering the consumers’ variety-seeking behavior, the traditional product attracted consumers with a high level of service and high price, while the sharing product attracted consumers with a low level of service and low price. When we only considered variety-seeking behavior and did not adjust the service level, the product with the low level of service benefited from the consumers’ variety-seeking behavior, while the product with the high level of service lost profits. When we considered the variety-seeking behavior and adjusted the service level as well as the price, the sharing product was attractive to variety-seeking consumers and it gained a greater competitive advantage over the traditional product. For two periods, the number of variety-seeking consumers who switched from buying traditional products to buying sharing products was greater than those who switched from buying sharing products to buying traditional products. Furthermore, we found that when the consumers’ variety-seeking behavior was not obvious, the number of consumers shifting from the traditional product increased monotonically. In contrast, when the variety-seeking behavior was obvious, the number of consumers shifting from the traditional product decreased monotonically.