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Underpromise and overdeliver? – Online product reviews and firm pricing

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dc.contributor.author Martin, Simon
dc.contributor.author Shelegia, Sandro
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
dc.date.accessioned 2020-05-25T09:27:09Z
dc.date.available 2020-05-25T09:27:09Z
dc.date.issued 2019-10-24
dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1674
dc.identifier.uri http://hdl.handle.net/10230/44792
dc.description.abstract This paper presents a quality signaling model with consumer reviews. Reviews refl ect true quality as well as consumers' expectations of quality, improving with the former and worsening with the latter. Expectation-based reviews give rise to a novel separating equilibrium with several interesting properties: (i) low quality types are deterred from charging high prices by disappointed consumers who may write bad reviews; (ii) high quality types are deterred from imitating low types and thus generating good reviews by low equilibrium prices set by the low types; (iii) prices charged by lowest quality types can be below marginal cost. The equilibrium price schedule is inversely related to the number of consumers who rely on product reviews. Hence higher reliance on reviews reduces prices. In contrast, more informative reviews may lead to lower as well as higher prices depending on how reviews are generated. These results extend to the duopoly model, where we show that prices are lower (higher) than under monopoly for prices above (below) marginal cost.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 1674
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title Underpromise and overdeliver? – Online product reviews and firm pricing
dc.type info:eu-repo/semantics/workingPaper
dc.date.modified 2020-05-25T09:26:07Z
dc.subject.keyword quality signaling
dc.subject.keyword consumer reviews
dc.subject.keyword reputation
dc.subject.keyword Business Economics and Industrial Organization
dc.rights.accessRights info:eu-repo/semantics/openAccess


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