Underpromise and overdeliver? - Online product reviews and firm pricing
- Author(s)
- Simon Martin, Sandro Shelegia
- Abstract
We consider a signaling model capturing the introductory and the mature phase of a product. Information concerning product quality is transmitted between consumers through reviews, which partially depend on the expectations consumers had prior to their purchase. When future sales are sufficiently important, a novel tension arises: High-quality types may want to underpromise and overdeliver by imitating low types in order to get a better review. We show the existence of a Pareto-improving separating equilibrium. Both more informative reviews and price transparency can lead to higher prices. Our analysis reveals a new rationale for loss-leadership.
- Organisation(s)
- External organisation(s)
- Heinrich-Heine-Universität Düsseldorf, University Pompeu Fabra
- Journal
- International Journal of Industrial Organization
- Volume
- 79
- Pages
- 102775
- ISSN
- 0167-7187
- DOI
- https://doi.org/10.1016/j.ijindorg.2021.102775
- Publication date
- 12-2021
- Peer reviewed
- Yes
- Austrian Fields of Science 2012
- 502013 Industrial economics
- Keywords
- ASJC Scopus subject areas
- Aerospace Engineering, Economics and Econometrics, Economics, Econometrics and Finance (miscellaneous), Industrial relations, Industrial and Manufacturing Engineering, Strategy and Management
- Portal url
- https://ucrisportal.univie.ac.at/en/publications/b11d599c-36a8-4285-bbb9-1a68ecbfb65a