Underpromise and overdeliver? - Online product reviews and firm pricing

Simon Martin and Sandro Shelegia

International Journal of Industrial Organization, 2021, vol. 79, issue C

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.

Keywords: Quality signaling; Consumer reviews; Reputation; Loss leadership (search for similar items in EconPapers)
JEL-codes: C73 D82 D83 L14 L15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167718721000680
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Under-promise and Over-Deliver? - Online Product Reviews and Firm Pricing (2021)
Working Paper: Underpromise and overdeliver? – Online product reviews and firm pricing (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:79:y:2021:i:c:s0167718721000680

DOI: 10.1016/j.ijindorg.2021.102775

Access Statistics for this article

International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal

More articles in International Journal of Industrial Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().