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Models of Herding Behavior in Operations Management

In: Consumer-Driven Demand and Operations Management Models

Author

Listed:
  • Laurens G. Debo

    (University of Chicago)

  • Senthil K. Veeraraghavan

    (University of Pennsylvania)

Abstract

When new innovative products and services are introduced into the market, the consumers often do not have complete information about the quality of such products or services. Even though they collect information from several sources, their private information about the product is generally noisy and inaccurate. Under such cases, the consumers complement their private information with some available public information based on what /other/ consumers chose. For example, customers might look at the queue length information in choosing a restaurant/sports bar, or examine available sales information while choosing a recently released book, or observe stock-out information in buying a new electronic product. In these cases, the consumers might ignore their own private information and could decide to wait in the longer queue, or to purchase a more popular book, or to wait for a stocked-out electronic product. Modeling consumer behavior with such positive externalities causes the overall demand to be significantly different from traditionally modeled consumer demand. Not surprisingly, such consumer decision processes also significantly impact firms’ capacity decisions: Long queues or stock-outs might signal better quality and thus generate more demand. Operations management literature in this area is nascent and emerging. In this chapter, we present current results in the operations management literature from papers that model consumer herding behavior and explore important future research directions.

Suggested Citation

  • Laurens G. Debo & Senthil K. Veeraraghavan, 2009. "Models of Herding Behavior in Operations Management," International Series in Operations Research & Management Science, in: Christopher S. Tang & Serguei Netessine (ed.), Consumer-Driven Demand and Operations Management Models, edition 1, chapter 0, pages 81-112, Springer.
  • Handle: RePEc:spr:isochp:978-0-387-98026-3_4
    DOI: 10.1007/978-0-387-98026-3_4
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    Citations

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    Cited by:

    1. Pascal Courty & Javad Nasiry, 2016. "Product Launches and Buying Frenzies: A Dynamic Perspective," Production and Operations Management, Production and Operations Management Society, vol. 25(1), pages 143-152, January.
    2. Vasiliki Kostami & Dimitris Kostamis & Serhan Ziya, 2017. "Pricing and Capacity Allocation for Shared Services," Manufacturing & Service Operations Management, INFORMS, vol. 19(2), pages 230-245, May.
    3. Jiang, Zhong-Zhong & Zhao, Jinlong & Zhang, Yinghao & Yi, Zelong, 2022. "Unraveling the cheap talk’s informativeness of product quality in supply chains: A lying aversion perspective," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 166(C).
    4. Jorge Mejia & Anandasivam Gopal & Michael Trusov, 2020. "Deal or No Deal? Online Deals, Retailer Heterogeneity, and Brand Evaluations in a Competitive Environment," Information Systems Research, INFORMS, vol. 31(4), pages 1087-1106, December.
    5. Pnina Feldman & Yiangos Papanastasiou & Ella Segev, 2019. "Social Learning and the Design of New Experience Goods," Management Science, INFORMS, vol. 65(5), pages 1502-1519, April.
    6. Li, Feng & Du, Timon C. & Wei, Ying, 2023. "This is what’s in store for you: How online social learning affects product positioning," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 179(C).
    7. Zheng, Rui & Shou, Biying & Yang, Jun, 2021. "Supply disruption management under consumer panic buying and social learning effects," Omega, Elsevier, vol. 101(C).
    8. Yina Lu & Andrés Musalem & Marcelo Olivares & Ariel Schilkrut, 2013. "Measuring the Effect of Queues on Customer Purchases," Management Science, INFORMS, vol. 59(8), pages 1743-1763, August.

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