Consumer store choice in Asian markets

Abstract

Consumers in Asian markets often need to make choices between highuncertainty stores and low-uncertainty stores. For example, an iPhone may be purchased from an Apple authorized retailer (a low-uncertainty store) or from an unauthorized seller (a high-uncertainty one). We build a game-theoretical model to capture the crucial roles of store uncertainty and consumer risk aversion in store choice. A model-based explanation is provided for the coexistence of charging a higher retail price and having a higher product demand. Interestingly, our finding shows that store uncertainty and risk aversion have the potential to enhance the overall market profitability under the full market coverage, whereas such profitability will be reduced under the partial coverage.Moreover, we find that consumer learning might not be beneficial to the market as a whole. While consumer learning increases the expected overall market profitability under the partial coverage, such learning actually decreases the expected overall profitability if the market is fully covered. Not only is the precision of signals during learning relevant, but also the number of signals per se plays an indispensable role in the market. In addition, we find that the second-mover advantage possibly enjoyed by a high-uncertainty store is an important force that changes market outcomes.