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.date.modified 2020-05-25T09:26:07Z
• 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.identifier https://econ-papers.upf.edu/ca/paper.php?id=1674
• dc.identifier.citation
• dc.identifier.uri http://hdl.handle.net/10230/44792
• 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.accessRights info:eu-repo/semantics/openAccess
• dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
• dc.subject.keyword quality signaling
• dc.subject.keyword consumer reviews
• dc.subject.keyword reputation
• dc.subject.keyword Business Economics and Industrial Organization
• dc.title Underpromise and overdeliver? – Online product reviews and firm pricing
• dc.title.alternative
• dc.type info:eu-repo/semantics/workingPaper