Online Product Reviews-Triggered Dynamic Pricing : Theory and Evidence

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

1 Scopus Citations
View graph of relations

Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)1107-1123
Journal / PublicationInformation Systems Research
Volume30
Issue number4
Online published5 Dec 2019
Publication statusPublished - Dec 2019

Abstract

Prior works offer compelling evidence that on the demand side of the market, user-generated online product reviews play a very important role in informing consumers' purchase decisions. On the supply side, however, the interplay between online product reviews and firm strategies is less understood. We build an analytical model that differentiates products based on consumers' preference for tastes (horizontal differentiation) or quality (vertical differentiation). We show that a monopolistic firm is able to not only manipulate its pricing to influence online product reviews (thus influencing sales), but also adjust pricing dynamically in response to online word-of-mouth. Our model derives rich results on possible price trajectories. To test the analytical predictions, we conduct an empirical study using a panel data of prices and reviews. We adopt a difference-in-differences framework to address the endogeneity challenges.

Research Area(s)

  • pricing, online product reviews, analytical model, empirical study