Managing consumer deliberations in a decentralized distribution channel

Abstract

Consumers may incur deliberation costs in learning about their valuations for new products. When the deliberation cost is not trivial, the retailer may set a low price to inhibit deliberation (regressive pricing) or choose a high price to induce deliberation (transgressive pricing). In a decentralized channel, we find that, first, the retailer is more likely to adopt the regressive pricing (versus transgressive pricing) when the wholesale price is lower. In response, the manufacturer sets a high (low) wholesale price to induce the transgressive (regressive) pricing when the deliberation cost is intermediate (high). Second, channel members can be misaligned in the incentive in investing in consumer empowerment. The ability to empower consumers and reduce their deliberation costs enhances the retailer’s channel power and its share of channel profit. Finally, the manufacturer may offer a socially suboptimal product quality because a high quality can lead to excessive deliberation. These nontrivial effects of the deliberation cost underscore the importance of considering consumer deliberations in channel management. The insights are robust under a positive production cost, heterogeneous deliberation costs, continuous deliberation efforts, and a channel structure with multiple layers.