On the implications of social learning for operational decisions

Papanastasiou, Yiangos (2015) On the implications of social learning for operational decisions. Doctoral thesis, University of London: London Business School.

Abstract

Social learning refers to the various processes by which individuals in a society learn from each other. While such processes have always been a part of every-day life, the recent proliferation of online communities where consumers exchange their experiences in the form of product reviews has brought social learning to the forefront of firms' interests. Traditionally, research on social learning has taken the perspective of social-welfare maximization, focusing on properties of the learning process (e.g., speed, accuracy) and on the dependence of these properties on alternative social structures (e.g., network topology, sampling mode). In such work, firms, if at all present, take on a passive role. By contrast, this thesis takes the perspective of a profit-maximizing firm, positing that several aspects of social learning are endogenous to the firm's operations. Thus, the goal is to demonstrate how operational decisions can be actively used to modulate social-learning outcomes in a manner that benefits the firm. Each of the three self-contained chapters of this thesis features a stylized model of the interactions between a firm and a population of consumers, who interact socially through product reviews in order to resolve their uncertainty over product quality. Each chapter focuses on a different type of operational decision, examining its interaction with the social learning process and highlighting the implications of this interaction. Chapter 1 focuses on pricing decisions. One important finding of this work is the dominance of dynamic pricing over pre-committed prices when consumers are forward-looking. This observation contrasts conventional knowledge that advocates price-commitment as best practice, and is shown to be the result of social-learning effects. Chapter 2 focuses on quantity decisions. This chapter highlights a mechanism, based on social learning, through which it may be optimal for the firm to deliberately under-supply the early demand for its product. This work therefore proposes an explanation for the recurring phenomenon of short-term stockouts of new experiential products. Chapter 3 focuses on information provision. This chapter considers how the disclosure of existing product reviews can be mediated by the firm so as to influence the behavior of other consumers. When the firm and consumers' objectives are misaligned, this work suggests that the firm can benefit by committing upfront to obfuscate review information.