To Hinder or to Facilitate: Retailers’ Strategy of Consumer Information Sharing

Abstract

Consumer information sharing is considered an effective strategy to attract consumers, yet certain high-end retailers, such as Bergdorf Goodman and Farfetch, tend to hinder consumers from sharing information through online reviews. We study a retailer’s strategy for consumer information sharing in a supply chain. We find that a retailer’s information sharing strategy can prevent manufacturers from extracting excessive profit when consumers are heterogeneous in their valuations of the selling product. Specifically, a retailer can achieve a higher profit margin by targeting all consumer segments. By strategically choosing the information sharing strategy to influence consumer beliefs, the retailer can induce the manufacturer to conform to the retailer’s preferred targeting segment through a low wholesale price. Thus, a high-end retailer, whose consumers have a high ex-ante quality belief, favors hindering information sharing among consumers because it enables the retailer to target all consumer segments. Interestingly, deterring consumers from learning about the product quality may generate more consumer surplus. Our main results are robust under extensions such as consumer search behavior, consumer waiting, and multiple product selling. When selling multiple products, a retailer with a large quality variation is better off hindering consumers from sharing information. Our work shows that strategically choosing a consumer information sharing strategy enables retailers to enhance profit margins in their interactions with upstream manufacturers.