Market-Level Effects of Information: Competitive Responses and Consumer Dynamics

Abstract

Information flowing into a market from firms can stimulate competitive activity and consumer dynamics that ultimately improve the functioning of that market (e.g., improve product quality). However, prior research has provided limited empirical evidence regarding the conditions under which (1) information confers such benefits on the market, (2) firms make strategic use of such information flows, and (3) consumer behavior influences the achievement of these market effects and strategic benefits. The author performs a longitudinal quasi-experiment to investigate these issues using the introduction of the Nutrition Labeling and Education Act (NLEA) as a research context. Results indicate that information did promote consumer dynamics that may have fostered competitive activity among firms. Specifically, marketers changed the quality of base brands and their brand extensions in unique and opposite ways that enabled brands to occupy distinct strategic positions in the market. Market information also influenced the nature of competitive rivalry by shifting price promotion levels depending on the healthy positioning of firm brands. Such approaches were speculated to provide firms with a means of coping with the uncertainty of competitive and consumer reactions to the NLEA, extending theories of the market-level effects of information to include the strategic use of such information by firms.