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Pricing for the Stars Dynamic Pricing in the Presence of Rating Systems

Author

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  • André Stenzel
  • Christoph Wolf
  • Peter Schmidt

Abstract

We study dynamic pricing in the presence of product ratings. A monopolist sells a good of unknown quality to short-lived heterogeneous consumers who observe aggregate ratings reflecting past reviews. Long-run outcomes depend on the sensitivity of the rating system to incoming reviews and the degree to which reviews internalize the purchase price. When internalization is high, low prices induce good reviews. For low internalization, good reviews obtain with high prices via selection on consumer tastes. Sensitivity benefits the seller due to easier ratings management, but may harm consumers by exacerbating upward pricing pressure when internalization is low.

Suggested Citation

  • André Stenzel & Christoph Wolf & Peter Schmidt, 2020. "Pricing for the Stars Dynamic Pricing in the Presence of Rating Systems," CRC TR 224 Discussion Paper Series crctr224_2020_143, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2020_143
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp143
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    Cited by:

    1. Martin, Simon & Shelegia, Sandro, 2021. "Underpromise and overdeliver? - Online product reviews and firm pricing," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    2. Dongwook Shin & Stefano Vaccari & Assaf Zeevi, 2023. "Dynamic Pricing with Online Reviews," Management Science, INFORMS, vol. 69(2), pages 824-845, February.

    More about this item

    Keywords

    Rating Systems; Dynamic Pricing; Asymmetric Information;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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