Impact of social media retailing on pricing decisions under uncertain environment

Abstract

With the rapid-developing social media, firms increasingly employ social media for different organizational purposes, including operations, marketing and innovation management. Meanwhile, a social media retailing channel as the outcome of integrating social media with online retailing has received increasing attention in a variety of industries and academic fields. Moreover, products update is getting faster and faster with rapid-developing technologies, which usually leads to more indeterminate information on demands and costs, thus the indeterminacy should be taken into account in pricing decisions. Based on this, we explore the impact of introducing this new channel on a traditional distribution channel under uncertain environment. Specifically, we construct two uncertain bilevel programming models under different channel structures, in which the demand of the social media channel is characterized as sensitive to the intensity of the social relationship. We find introducing the social media channel may either increase or decrease wholesale price and the traditional retailer’s retail price, depending on the expected value of the intensity of the social relationship. When the social media channel is introduced, equilibrium prices will increase with the intensity of social relationship, namely, a stronger social relationship leads to a higher retail price not only in the social media channel but also in the tradition channel. A series of numerical experiments show that a rise in the uncertain degree of the intensity of the social relationship will raise the manufacturer’s expected profit, but has no impact on equilibrium prices and the retailer’s expected profit.

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